A survey of UK utilities companies carried out by Deloitte, the business advisory firm, has identified the burning issues facing the industry including security of supply, meeting Government’s environmental targets and effective regulation.

Energy prices are an increasingly pressing issue and over a third of respondents believed price increases of 20-50% would be required to fund UK Government’s environmental commitments.

Walter Carlton, Associate Partner in Deloitte’s Energy team, commented: “While some consumers are motivated by environmental and sustainability considerations, most are principally driven by cost and have grown accustomed to a fiercely competitive energy supply environment.

“We also recognise the potential impact of increasing energy prices on lower income and vulnerable groups and it remains to be seen whether such increases would be palatable to the Government.”

The survey of respondents revealed the importance of nuclear in the energy mix, and over half of respondents (59%) felt it would be the most significant contributor in achieving the Government’s environmental commitments for carbon emission reduction by 2020.

Alastair Scrimgeour, Partner in Deloitte’s Energy team said: “The importance placed on nuclear in our survey is particularly interesting. Extending the operational lives of the existing nuclear fleet can only be a transitional measure. Given the lead-time for nuclear new build, even with continuing and unfailing Government support, it is likely that the first new nuclear plant will not commence operation before 2018.  Hence it is imperative that Government, industry, the finance markets and suppliers work very closely together to meet these very tight deadlines.”

Ofgem’s role has been challenged following increased intervention by DBERR in the energy markets and over half of those surveyed (54%) thought Ofgem’s roles should be re-defined in order to meet the Government’s energy and environmental objectives.

The UK’s current competitive energy market was challenged. The majority (61%) thought that in order to achieve sustainability targets, provide adequate diversity, and security of supply, the Government needs to move away from current market-based incentive measures and competitive marketplace through the New Electricity Trading Arrangements (NETA).

Walter Carlton remarked: “The vast majority of new generation plants under NETA have been gas-fired. With the run-down in North Sea reserves, significant global rises in wholesale prices and political uncertainty in many of the main producing areas, serious concerns have arisen over security of supply.

“NETA had been very effective in driving out inefficiency and delivering price reductions at a time of surplus supply. However it may be less well suited where demand is closer to available supply. It has been a close call over recent winters and will be increasingly dependent in the future on pipelines through Europe delivering Russian gas, despite investment in LNG facilities.”

Doug King, Deloitte Vice Chairman and Senior Energy Partner stated: “To address the UK’s energy needs, there is a need for joined-up Government – in delivering changes to the planning regime, facilitating grid connections and putting in place a robust carbon framework that extends well beyond 2020. The Government has announced its support for nuclear and development of commercial CCS – delivery on these commitments is critical.”

Read more and download the full report: The Future of Utilities

Ends

About the survey
The second Deloitte Renewable survey analysed the responses of attendees at the Future of Utilities seminar on 10-11 March 2008.

For more information about the group visit http://www.deloitte.com/dtt/section_node/0,1042,sid%253D2855,00.html

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP, which is among the country's leading professional services firms.

Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein, whose member firms are legally separate and independent entities.  Please see www.deloitte.co.uk\about for a detailed description of the legal structure of DTT and its member firms.
The information contained in this press release is correct at the time of going to press.

For more information, please visit www.deloitte.co.uk.