VZCZCXRO0662
PP RUEHAST RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD RUEHTM
DE RUEHLO #2294/01 2551341
ZNR UUUUU ZZH
P 111341Z SEP 08
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 9699
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE PRIORITY
RUEHBL/AMCONSUL BELFAST PRIORITY 1107
RUEHED/AMCONSUL EDINBURGH PRIORITY 0974

UNCLAS SECTION 01 OF 02 LONDON 002294 

SENSITIVE SIPDIS

 DOE FOR DEP SEC KUPFER E.O. 12958: N/A 

TAGS: KERG

SUBJECT: SCENE SETTER FOR VISIT OF DEPUTY SECRETARY OF ENERGY JEFFREY KUPFER LONDON 00002294 001.2 OF 002

1.(SBU) Embassy London welcomes the visit of Deputy Secretary Jeffrey Kupfer on September 15-17. Issues of the economy and security of energy supply have come to the fore in the UK, and the conflict between Russia and Georgia has served to highlight that an increasing amount of the UK,s natural gas is imported. Although the UK has relied on its North Sea oil wells to provide domestic oil and gas, in 2007 approximately 25% of the UK,s natural gas was imported. Production from the UK,s North Sea fields is beginning to decline.

 The Energy Markets: Dwindling Supplies, Higher Prices --------------------------------------------- --------

2.(SBU) Last week was a bad week for the current government, with Chancellor of the Exchequer Alistair Darling publicly saying that the UK,s economy in its worst shape in sixty years. Following that statement, the OECD released a report on the world,s seven largest economies, noting that only the UK was facing a recession, with all others only a slow-down. The property market and the financial sector, two main drivers of the UK,s growth, have both been hit hard by the credit crisis. There are indications that the UK economy may already be shrinking, with manufacturing output falling for the past five consecutive months to July. If the economy has contracted in the three months ending in September, it will be the first full quarter of contraction since 1992.

3.(SBU) The rise in commodity prices has hit consumers particularly hard. The cost of food has risen sharply this year, as have petrol prices. Consumers are feeling squeezed by higher prices, including drastic rises in home heating and electricity costs. In August, most major electricity and gas companies pushed up rates, led by British Gas, 35% increase. &Fuel Poverty,8 defined by the government as any household that spends more than 10% of its income on home heating, is a topic of public debate.

4.(SBU) In the past few years, the UK has become increasingly reliant on imported fuel. According to The Independent, the UK uses gas for heat in 85% of its homes, and for 40% of its electricity production,. In 2007, it also imported 80% of the coal it used for electricity. With a decreasing share of its oil and gas coming from domestic pipelines, there is impetus to find long-term alternatives. The UK has supported the Nabucco Pipeline project, and continues to be a voice for diversification away from Russia and Russian-controlled pipelines. HMG has also been in discussion with Nigeria regarding technical assistance to help increase its output of both oil and natural gas. 

Alternative Energies and the Nuclear Option -------------------------------------------

5.(U) The UK will have to produce roughly 14% of its total energy consumption from renewables by 2020 to meet EU guidelines. While this target is significantly lower than for some other major European economies, it reflects a steep increase from today,s 1.5%. Secretary of State for Business, Enterprise and Regulatory Reform John Hutton and the Minister for Energy Malcolm Wicks have both pushed for more rapid expansion of wind farms, both on and off shore. Although Britain is gifted with excellent wind energy potential, a lengthy planning process and a weak grid infrastructure are seen as large impediments. The current Energy Bill being debated in Parliament is seeking to change the planning process for large energy projects from a predominately local affair to a national process. Many are hoping that this will help speed up the building of large-scale wind farms and grid improvements. The UK is increasing its funding for research in all areas of renewable energy and carbon capture and storage (CCS), and is about to announce a $2 billion program to promote energy efficiency in homes and buildings. The UK has a biofuels mandate to produce a steadily increasing percentage of its transportation fuels from renewable sources, but recently public sentiment has turned against biofuels as &unsustainable.8 Marine energy from waves and tides is a popular topic when renewable energy is discussed but the technologies are far from being ready for large-scale, commercial deployment. Nonetheless, there is strong sentiment, including from Members of Parliament, against building new coal-fired power plants. The Government advocates a diversified mix of energy sources, with transition over time to low-carbon and renewable sources. LONDON 00002294 002.2 OF 002

6.(U) While it is not considered renewable energy, there is a nuclear renaissance in the UK. With all but one of the existing reactors scheduled to be decommissioned by 2024, it is imperative that the UK build new plants if nuclear power is to remain a part of the energy equation. Presently, it makes up just under 20% of the UK,s electricity. The government has been strongly in favor of new nuclear, and has put up for sale its controlling stake in British Energy (BE), which operates all of the current nuclear fleet. Although Electricite de France (EDF) bid on BE, its offer was rejected by shareholders in July because it was too low. It now remains to be seen if EDF will return with an improved offer, and if other utilities are interested. The stated aim of EDF is to build the first new reactor in the UK by 2018. This week, the Nuclear Decommissioning Authority, which is in charge of all decommissioning projects in the UK, announced that it would sell land adjacent to sites that are decommissioned for the building of new reactors. Visit London's Classified Website: XXXXXXXXXXXX
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