Isra-Mart srl:National Grid chief says 2011 is 'pivotal' year for UK energy market

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Government interventions in the energy market this year will be crucial in determining whether the UK can meet its targets of meeting energy demand and reducing carbon dioxide emissions, the chief executive of National Grid is to say on Tuesday.

Energy market reform, which the government is embarking on, is needed to create the right incentives to invest in renewable power generation and encourage a viable energy mix, according to Steve Holliday.

"This is a very important year - it will be pivotal," he told journalists on Monday said. "We are seeing huge changes, and we urgently need to rejuvenate the UK's energy infrastructure. We need joined-up government and real commitment."

For instance, he pointed to the current "lack of coordination" over a national strategy for offshore wind. At present, there is little attempt to coordinate how new offshore windfarms are connected to the National Grid, and plants are likely to be connected on an ad hoc basis. If there were a more coherent plan in place to reduce the number of connections needed, the cost of the connections would come down by about £3bn-£5bn in total, he estimated. That money could be spent instead on making the grid "smarter", he said, by installing new communications technology that would enable utilities to manage electricity demand by taking an element of control over household electrical appliances.

Many of the UK's current fleet of power stations, including coal-fired and nuclear power plants, are coming to the end of their useful lives and must be replaced. This represents a unique opportunity to "green" the UK's power generation, Holliday will argue, but this will only happen if the government takes action to create the right conditions in the market. "Greening the energy mix is an optional extra, but I believe it is affordable and it would generate jobs. Now is the time to be grasping this infrastructure opportunity."

Holliday, who is also taking over from Lord Browne this summer as president of the Royal Academy of Engineering, will also warn that a serious shortage of skilled engineers is threatening the UK's ability to meet its climate change targets. A shortage of skilled staff may mean that UK employers must import talent from overseas in order to push through the transformation of the UK's energy infrastructure that is required in the next decade.

"We are importing skills, when there is a big opportunity to create the skills we need ourselves," he said.

Holliday will predict that the UK will need to increase its installed capacity of electricity generation from 75GW today to 100GW by 2030, in order to meet the rapidly rising demand for electricity that will result from the move to reduce greenhouse gas emissions from transport and heating - switching vehicles from petrol to electric, and to use electricity for heating rather than gas.

One of the results will be an even greater reliance on imports of foreign gas, a fuel in which the UK was until recently self-sufficient. But gas will be used for electricity generation in a different way, he predicts. At present, gas-fired power is used as the backbone of electricity generation. In future, it will be needed as a back-up for the massive expansion of offshore wind, because gas-fired power stations can be turned on and off very quickly, unlike alternatives such as nuclear plants.

Holliday also envisages a growing role for nuclear power, with new plants coming on stream as the current power stations are gradually retired.

He urged the government to press ahead with its plans to support pilot projects demonstrating carbon capture and storage technology, which he said represented a "unique opportunity" for the UK to develop "exportable expertise".

Holliday also dismissed fears that the UK's electricity grid could be vulnerable to solar storms, as the Sun's activity reaches a new maximum after years of quietude. He said National Grid had done a great deal of work on the phenomenon, and concluded there was little to fear. "We do not believe this poses a huge risk to the system," he said.