London, 31 March 2010

In its response to the OFGEM document ‘Project Discovery: Options for delivering secure and sustainable energy supplies’ which closes today, the Institute of Directors (IoD) says following:

Energy security has to be at the top of the agenda for the next Parliament

• UK Energy policy has not been sufficiently focussed on mitigating the very serious risk of power cuts in the middle of this decade.

• Business leaders are deeply concerned about the UK’s energy security. In a survey last month of 1,800 IoD members, ensuring secure energy supplies was identified as the single most important issue that a new Government should address over the course of the next full parliament.

• The proliferation of Government support mechanisms and policy instruments to encourage renewable energy and indecision about the role of nuclear power, has sent mixed signals to investors, and has not encouraged private investment in new capacity.

• And while we agree that OFGEM may be right to question the ability of current market arrangements to deliver new energy generating capacity, we believe that Government indecision, flaws in the UK’s strategic planning system and the persistent threat of windfall taxes on the profits of energy companies have been extremely unhelpful.

Overwhelming Business support for Nuclear Power

• The degree of support for new nuclear power stations in the business community is startling. In a survey earlier this month of 1,800 IoD members, 85 percent said that new stations should be built in the UK. If the Government is looking for a strong mandate, and if there is demand in the market, there is clear business support for nuclear.

Some Solutions

• Replace the Renewables Obligation and instead set a carbon price which allows the market to determine the appropriate mix of low-carbon capacity, including nuclear.

• With a stable carbon price and significant market freedom there will continue to be a significant role for wind power. It is therefore crucial that we create a market framework that incentivises energy companies to invest in back-up storage and generation to offset the risk of intermittency (i.e. when the wind doesn’t blow).

• The new Infrastructure Planning Commission must be retained in order that strategic energy projects of national importance, such as nuclear power, are fast tracked. If private investment is forthcoming and there is Government approval for a project, there is no reason for further delay.

• We need a new push to open up Europe’s energy markets. The juxtaposition of the UK’s liberalised markets with the highly regulated position in the rest of Europe hinders the UK’s energy security. A more effective European grid would improve access to gas supplies and increase the viability of wind power.

Commenting, Miles Templeman, Director-General of the IoD said: “We believe that political indecision, flaws in the UK’s strategic planning system and the persistent threat of windfall taxes on the profits of energy companies has discouraged private investment in new capacity and left the UK exposed to power shortages.

“The message from business leaders to the next Government is unambiguous: deal with the energy security problem and start dealing with it now. If this results in speeding up the planning process and a large building programme of new nuclear power stations, so be it. The UK can’t afford blackouts.”

Ends --

To read the IoD response to the OFGEM consultation in full, see www.iod.com/projectdiscovery