The business leader's guide to the low carbon economy

Wind power is big business in the UK. Back in January of this year the UK government announced that it had granted licences for nine huge offshore windfarms, with the potential to generate 32GW of power – a quarter of the country’s needs. Today Mitsubishi Power Systems Europe revealed that it plans to invest £100m in wind turbine production in the UK.

The economics of an offshore wind farm are almost the opposite of a conventional power station. It’s relatively cheap to build a coal, oil or gas fired power station, but the running costs are high as fuel becomes more and more expensive. A windfarm – especially offshore – has very high upfront costs but the running costs are extremely low, as the fuel is free.

When it blows, that is. Much has been made of Denmark’s ability to generate 20% of its power from wind, but this is really only feasible because of a nifty deal the Danes have made with their Scandinavian neighbours. When the Danish wind blows, they export electricity to Norway and Sweden: when it doesn’t, their neighbours bale them out with hydroelectric power. If we’re serious about wind power in the UK, we’re going to have to find some way of balancing supply and demand like this.

One thing we don’t have to worry about is birds. It’s often said that wind turbines kill huge numbers of birds. Indeed, it’s estimated that Danish windfarms kill around 30,000 birds a year. That sounds quite a lot until you compare it to one million birds a year killed by traffic in Denmark, or the 55 million birds a year killed in Britain by cats.

Unless the British Government takes action, the UK will run short of electricity sometime in 2015. Under EU pollution rules six coal and three oil fired power stations will have to close by then, reducing the UK’s generating capacity by 15%. You could fill this gap – of about 12GW of electricity – by building some nuclear power stations but unfortunately the ten recently approved by the government won’t be ready until 2018 at the earliest. You could also fill the gap by building two huge new windfarms on the Dogger Bank and the Norfolk Bank, but these won’t be ready until 2020 at the earliest.

So it looks like power cuts are on the way, probably just as the new government we’re about to elect this May is coming towards the end of its first term…

… unless power companies RWE npower and E.ON, the two German owned firms who run these coal and oil fired power stations are successful in gaining an exemption from EU rules. Which is why they are ‘in private talks’ with senior Conservative politicians right now.

Richard Branson’s airplanes require a fair amount of fuel to keep them in the air, and his trains use up quite a bit of energy too. Brian Souter’s Stagecoach group is another big user of oil, while power company Scottish and Southern Energy and construction firm Arup also rely heavily on cheap sources of energy. So when these companies put their names to a report, released today, which says that that oil is going to become so expensive that the UK economy risks a disastrous oil crunch, they probably know what they are talking about. Interviewed on Radio Four’s Today programme, Arup’s Global Leader for Energy Resources and Industry John Miles said that the price of oil (currently trading at around $80 a barrel) could rise to $150 or $200 a barrel. If we don’t move fast towards a low carbon economy in the UK we may not have much of an economy at all.

More information about this report on the website of the UK Industry Task Force on Peak Oil and Energy Security: http://peakoiltaskforce.net/