Major investments in new generation and transmission infrastructure are required over the next few years to provide secure and sustainable energy to power our homes and economy, as a third of the UK's generation fleet reaches the end of its operational life. This presents a significant challenge for the UK power industry, which operates in a highly competitive market dependent on skilled resources to meet increasing demands for energy.

A number of the UK's coal and oil-fired power stations have 'opted out' of the "Large Combustion Plant Directive" and will close by the end of 2015. In addition, some nuclear power stations are also reaching the end of their operational lives.

The environment is high on the agenda for power companies, the UK Government and the European Union (EU). New generation projects must respond to the threat of climate change whilst also providing secure, flexible and affordable energy supplies.

EU Security of Supply

Following a second strategic energy review, Europe is looking to achieve its core energy objectives of sustainability, competitiveness and security of supply. This means substantial change in Europe's energy system over the next few years, with public authorities, energy regulators, infrastructure operators, the energy industry and citizens involved. It means choices and investments during a time of change in global energy markets and international relations. The European Commission has proposed a wide-ranging energy package, which includes:

• Putting forward a new strategy to build up energy solidarity among member states and a new policy on networks to stimulate investment in more efficient, low-carbon energy networks
• Proposing an Energy Security and Solidarity Action Plan to secure sustainable energy supplies in the EU and looking at the challenges that Europe will face between 2020 and 2050
• Adopting a package of energy efficiency proposals which aims to make energy savings in key areas, such as reinforcing energy efficiency legislation on buildings and energy-using products
• An EU stimulus package has recently been made available, aimed at increasing gas and electricity interconnection across the Baltic interconnector, southern EU gas corridor, liquid natural gas network and new North Sea offshore grid, as well as offering financial support in the form of €500m for offshore wind and €1.25bn for carbon capture and storage

"Clean Green" Energy

The European Commission's new "Green Package" of legislation on climate change and renewable energy sets targets that represent a step-change in the energy market. This includes 20% energy savings, increasing the share of renewable energy to 20%, and cutting greenhouse gas emissions by at least 20%, all by 2020. Renewable energy remains central to the UK Government and Scottish Governments' energy and climate change strategies. The UK Government consulted on the development of its renewable energy strategy in 2008 and will report its findings in spring 2009.

The UK is currently seeking to meet 20% of its energy needs from renewables by 2020, while the Scottish Government aims to meet half of Scotland's energy demand from renewables in the same time-scale. These ambitious targets require a step-change in the deployment of renewable energy, requiring investment of around £50-£100 billion. This will be helped by the Government's announcement in November of an extension to the Renewables Obligation (which provides support for renewable energy projects) from 2027 until at least 2037.

The full deployment of renewable energy to these timeframes, including onshore and offshore wind and marine energy projects, will be made more difficult if projects to upgrade the UK's electricity network continue to meet extended planning delays.

Maintaining Base-load Capacity

The UK must maintain adequate thermal capacity, to provide a level of security that cannot be achieved solely by renewable energy. An increasing windfarm fleet, whose supply of energy can be variable, currently dominates our renewable energy supply. The challenge of meeting base-load demand necessitates:

• Investment in existing thermal power stations, including coal-fired power stations, as a bridge to low carbon technologies, including potential for carbon capture
• Use of Combined Cycle Gas Turbines, to help close the medium term energy gap
• Development of the role for nuclear as a low carbon source of generation
• Development of gas storage facilities and the need for the UK to increase storage substantially from today's levels

Investment Environment

Investing in base-load power stations is required despite the challenging economic conditions that look set to prevail until at least the end of 2009. However, energy companies need a stable regulatory environment in order to plan and have confidence in the significant investments that are made on behalf of customers and shareholders.

There is uncertainty surrounding emerging European environmental legislation, including the proposed Industrial Emissions Directive (IED). The implications of the Directive are far reaching and it is necessary to ensure there is a balance in terms of environmental improvements and the minimum requirements of the UK's energy infrastructure.

With business and domestic customers feeling the effects of the recession, policy makers and energy companies need to be more mindful than ever of the need to balance environmental concerns with providing secure power supplies at prices customers can afford.

John Campbell, Impact Leader