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Business Review 2006 from
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Energy's glowing outlook
Mike Liston
JEC chief executive
Energy has been propelled into the headlines the world over in recent years as the planet faces the real prospect of energy shortages and climate change - all involving fossil fuels, principally oil, gas and coal.
World energy demand is set to double in the next 30 years, but the production of oil from economically recoverable reserves is forecast soon to begin its progressive decline.
This, together with political instability in the oil producing countries of the Middle East and the World's increasing dependence on Russia for gas, has tripled the price of oil and gas in the past three years.
Analysts expect no easing of energy prices and warn of increasing market volatility, especially in response to political and weather-related events.
Last month in the UK, wholesale gas prices quadrupled in just one day when the much anticipated shortage of gas supplies materialised as a result of a spell of cold weather.
The world's focus on energy has been further sharpened this year by new scientific evidence pointing to a much faster rate of global warming than previously feared. The increasing frequency and severity of storms has claimed countless lives around the globe and the nightmare of widespread flooding by rising sea levels is becoming real.
Governments everywhere now regard energy security, energy cost and environmental impact as their market priorities.
Markets
What of Jersey? With no conventional energy sources of its own, there's no escaping the effects of the energy markets which drive the world around it.
Local prices of heating oil and gas have increased by nearly 100% since year 2000. Electricity prices have increased by only 15% in the same period as a result of Jersey Electricity's strategic foresight in displacing locally produced electricity generated from oil in favour of power imported from Europe.
But in Europe too, electricity prices have been steadily rising and Jersey Electricity's ability to continue absorbing increased costs - which will halve the company's profits this year - is limited by its need to continue to invest in the Island's electricity network and its connections to the continent.
Such investment is essential to preserve the high levels of electricity supply reliability on which the Island and its technologically sophisticated finance industry in particular, depend.
So far this decade, electricity supply reliability in Jersey has on average, been seven times higher than in the UK. At the same time average electricity prices in Jersey are nearly 20% less than in the UK and Europe and almost uniquely, the electricity we use makes virtually no contribution to the emission of greenhouse gases which the developed World has pledged to reduce, in its battle to combat climate change.
Jersey Electricity sources the cheapest, cleanest electricity available in the competitive European power markets and because it now supplies virtually all the Island's needs with nuclear and hydro-power, Jersey's greenhouse gas emissions are now dramatically lower than its implied allowance under the terms of International Climate Change Conventions. But how sustainable is all this?
Electricity has a far higher share of the total energy market in Jersey than in the UK for example, where a previous era of cheap natural gas made it the fuel of choice for households and businesses.
Here, eight out of every ten homes and offices built since the late 1990s in Jersey's property development boom have all-electric heating and/or cooling. As this trend continues, more of the Island's housing stock will become emissions-free and environmentally superior.
But wouldn't it be unwise for all the Island's energy eggs to be in one basket? Do we want an all-electric Island? Well, no. Apart from the wisdom of having a mix of energies available for strategic security, it's important to have competition at least between oil, gas and electricity in a small energy market like Jersey's which is unable to sustain more than one supplier of each of these commodities.
For the record, there's nothing to stop other electricity companies entering the Jersey market and using the existing power importation and distribution network to supply their customers.
But electricity prices in the Island are too low to attract new suppliers and because Jersey Electricity buys power on the European wholesale market at prices as good as any other supplier can, it's not easy for a new entrant to gain competitive advantage. Jersey Electricity is unashamed that its strategy in winding down its local power generating business in favour of imported electricity purchased in the competitive markets in Europe, has undermined the very need for more than one electricity company here. Competition? Yes it's a good thing. So good, that we import it every day.
Looking ahead, Europe will remain key to preserving the cost effectiveness, cleanness and security of this Island's electricity supply. A third electricity interconnector with the continent - planned for 2012 - will provide required resilience to the fault breakdown of either of the two existing links and will finally eliminate the already minimal use of heavy fuel oil at La Collette power station.
Waste
That plant's adaptation to provide many of the facilities (including the existing chimney) for the planned new energy from waste incinerator, will substantially reduce the cost to the Island of both amenities - a standby power station in case of a catastrophic collapse of electricity supplies from Europe and a state-of-the-art waste management plant. The Island's energy and environmental objectives are set out in the States draft Strategic Plan and Jersey Electricity will continue to play the lead role in delivering them.
Europe has almost completed the full integration of national electricity systems and their complete opening to competition. The European Commission's determination to diversity further towards renewable energy is already getting results and being plugged in to the European market, Jersey can benefit from these developments. But this doesn't mean ignoring the opportunity to harvest the renewable energy available locally.
Offshore wind power is at present the only form of large-scale renewable energy which is economically viable given the huge cost and immature technology involved in harnessing marine power.
Offices
But on a smaller scale, significant opportunities exist to extend the already impressive use of heat pump technology in Jersey to exploit thermal energy in the sea, ground and air.
More than one million square feet of office space in Jersey already uses this technology to get an element of 'free' heating and cooling from the outside air and Jersey Electricity is working with the Waterfront Enterprise Board and its developers to achieve world-class environmental sustainability on the waterfront by using proven technology to extract heat from the sea.
The final role in environmental sustainability lies with the final user of energy. Jersey's new buildings are vastly more energy efficient than ever before and so are the appliances used in them.
But the importance of simple conservation measures remains as high as ever - and notwithstanding all the investments being made by energy suppliers and property developers in the cause of the environment, it's the behaviour of the consumer that makes the final difference.
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