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Dash for gas risks high costs for industry and consumers

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As the Government prepares to decide on Wednesday how much new gas supply to build, an expert study finds that a gas-heavy electricity system in the UK could be a far more expensive option than a renewables based system.

A groundbreaking new study has been published today highlighting the financial risks the UK could face by pursuing a new dash for gas. The study is published as the Quad of senior Government Ministers prepare to meet on Wednesday to finalise the UK gas strategy and key elements of the forthcoming Energy Bill.

The study, commissioned by E3G, finds that a gas-heavy power pathway not only carries a serious risk of the UK missing its carbon targets, but could also lead to much higher costs for industry and consumers than a renewables based system.

The findings are new and significant because the report not only analyses the impact of potential gas cost increases, it also models what would happen to electricity costs if energy efficiency savings, CCS deployment or nuclear build did not occur at the scale or speed expected by Government under a gas-heavy electricity system. It is therefore one of the most advanced studies ever published to properly assess the risks of implementing a gas heavy strategy in the UK.

The study shows that there are scenarios under a gas heavy system where power sector costs could increase by up to 98% more than expected by 2030. These costs result from companies having to rapidly build zero-carbon power plants in order to keep inside carbon limits. In comparison, an electricity system with continued targeted support for investment in renewables carried the risk of costs increasing at most by up to 8% more than expected by 2030 under the same scenarios.

Even without a sharp rise in gas prices, a gas-heavy electricity system could lead to costs which are far higher than one with a steady deployment of renewables.

The gas debate has heated up since George Osborne called for a “strong signal that we regard unabated gas as able to play a core part of our electricity generation to at least 2030” [1]. George Osborne also announced in his speech to the Conservative Party Conference last week that Treasury would be consulting on tax breaks to incentivise shale gas extraction.

In light of the new analysis, E3G today calls on the Government to fully appraise the risk of a dash for gas. Nick Mabey, CEO of E3G said:

A dash for gas could lead to surging costs for industry and consumers. The Government must take into account all the potential risks of a gas-based energy system and should push for a balanced package of measures which includes an ambitious deployment of renewables, a proactive strategy to secure large scale CCS, and the rapid expansion of electrical efficiency. If they fail to do so they risk serious damage to the UK economy.

The report briefing and key figures are available here.

For more information, please contact:
Pelin Zorlu, Policy Advisor, E3G
Email: pelin.zorlu@e3g.org
Tel: +44 (0)207 593 2024

Notes for Editors:
[1] – Letter from the Chancellor of the Exchequer George Osborne to the Secretary of State for Energy and Climate Change, Ed Davey, 9th July 2012 (http://www.guardian.co.uk/environment/2012/jul/23/george-osborne-letter-ed-davey-gas-wind)

About E3G
E3G is an independent, non-profit European organisation operating in the public interest to accelerate the global transition to sustainable development.

E3G builds cross-sectoral coalitions to achieve carefully defined outcomes, chosen for their capacity to leverage change.

E3G works closely with like-minded partners in government, politics, business, civil society, science, the media, public interest foundations and elsewhere.

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