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The Energy Industry Market Review 2005
Key Note Publications Ltd, March 2005
The UK has a strong energy industry based on a variety of natural reserves. It also has the environmental conditions to develop a major, new renewable-energy sector through wind energy and, in the longer term, other technologies. In addition, the UK has highly developed expertise in the nuclear-power sector.
Structurally, the industry is privatised, with opportunities for new entrants and all end users having a choice of supplier.
This Market Review segments the UK energy industry into seven sectors: oil, natural gas, electricity, nuclear energy, coal, renewable energy and combined heat and power (CHP).
Oil is a key component of the UK's energy industry. There is a major offshore oil industry based in waters surrounding the UK. As well as providing energy for the UK, it is a source of tax revenue and it also supports an export trade. However, production from the UK offshore industry is now declining and, unless new economically viable discoveries are made, output will continue to decline at the present rate of consumption. In the longer term, the UK will increase its oil imports.
Most of the oil processed through UK refineries is used to provide fuel for transport, particularly road vehicles. Oil is also used as a feedstock for the chemical industry.
The UK Continental Shelf (UKCS) also contains important reserves of natural gas, which provide gas for the UK mains gas supply and fuel for electricity generation. Natural gas production from the UK's offshore industry is now decreasing and an increasing amount of gas is being imported. Gas is a vital component of the UK's energy resources. Future supplies are to be sourced from a variety of regions, including Russia, Africa and the Middle East. The UK has an interconnector gas pipeline to continental Europe.
The onshore gas industry is regulated by Ofgem (the Office for Gas and Electricity Markets). Gas is supplied to customers by energy companies, which also supply electricity.
Electricity in the UK is generated by using coal, gas, nuclear power and, to a much smaller extent, renewable sources. For many years, coal was the main fuel used for power generation, but it has lost market share to gas, which can be burnt more efficiently with fewer carbon emissions. Gas will continue to grow as a source of fuel for power generation. The future role for nuclear power is uncertain. Renewable energy will play a greater role in power generation in the UK. Ofgem regulates the electricity market.
Nuclear power currently provides around a fifth of the UK's electricity. Changes in the structure of the electricity market have had an adverse effect on the competitive position of nuclear power and the main UK nuclear-power generator has experienced serious financial difficulties, resulting in urgent government support. The whole nuclear-power sector is being reorganised in such a way that the Government will take over liabilities for many of the assets. It is hoped that this will make the nuclear-power sector more competitive. This move deals with environmental aspects of the sector, based on the current nuclear-power stations, which are all due to be decommissioned by around 2020, with no plans to replace them. At present, the Government is keeping its options open regarding the future of nuclear power.
The UK's coal industry continues to decline, with less UK-produced coal being used in power generation and much of the coal that is used being imported. Coal produces large amounts of carbon emissions and the installation of clean-up equipment would be very costly. Gas has replaced much of the coal previously used for electricity production. There is now only one major producer of coal in the UK. Deep mines continue to be closed as coal reserves run out or become uneconomic to recover. Opencast coal production is an option, but planning approvals are difficult to obtain.
Renewable energy is a growing sector in the UK energy industry. Targets have been set requiring electricity suppliers to source specified amounts of their electricity from renewable sources. The biofuels sector produces most of the UK's renewable power. As far as new renewable energy is concerned, the wind-power sector is now expanding rapidly, as a result of the emerging offshore wind-power sector.
In combined heat-and-power (CHP) plants, heat produced by the electricity-generation process is recovered and used locally. It is an efficient process, but increases in the price of gas have made CHP plants unattractive. Some CHP schemes have been mothballed. However, new government initiatives have been drawn up to help support the sector.
Statistics, an analysis of industry structure and profiles of major players are included for each sector of the energy industry, in addition to an overview of the industry as a whole.
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