Page last updated at 10:47 GMT, Wednesday, 3 February 2010

Fears over future power shortages

Electricity pylon
The energy industry needs 200bn of investment, says Ofgem

Mainland Britain could face power shortages in the years ahead, according to the energy regulator, Ofgem.

The regulator also warned that a significant number of consumers may not be able to afford the higher energy prices they would have to face.

Ofgem said there was "reasonable doubt" about whether the energy market would be able to deliver sustainable supplies in the coming decade.

Energy Secretary Ed Miliband expressed confidence in supply needs being met.

Investment

In a final report, which took a year to complete, Ofgem said the UK's open competitive energy market could fail to deliver secure, sustainable supplies in the coming decade.

ANALYSIS
John Moylan
By John Moylan, Business reporter

Ofgem's vision of the coming decade is indeed bleak. And its proposals to encourage the necessary £200bn investment - which involve increasing levels of government intervention - amount to a reversal of more than two decades of liberalisation in the UK's energy market.

The core finding that the current market arrangements may not deliver secure and sustainable supplies simply reflects the growing consensus that something has to change.

What's astonishing - given the timescales outlined by Ofgem - is the level of disagreement in the sector over what exactly needs to happen. The big electricity producers don't even agree on one of Ofgem's more modest proposals - setting a minimum price of carbon.

And the Government is at odds with its own regulator - it denies there is any risk to security of supply in the coming decade.

The regulator said the industry needed £200bn of investment by 2020 but the energy companies may need stronger incentives before committing that level of funds.

It would also have a knock-on effect on prices, leaving an increasing number of consumers unable to afford the energy they would normally use.

Previously, Ofgem had suggested the average household annual gas and electricity bill would rise by up to 25% to £2,000 or so by 2020.

Chief executive Alistair Buchanan told BBC News: "Given the scale of investment, our bills are going to have to take some of the heat on that.

"Faced with the unprecedented challenge of carbon prices, the unprecedented challenge of the credit crunch and the unprecedented challenge of maintaining international supplies, we are looking at new solutions to protect security of supply."

The regulator suggested a series of solutions that should be considered by the government owing to the uncertainty.

The most eye-catching was a move away from competitive markets, which to some extent would reverse the privatisation of the energy market as there could be a centralised energy buyer that could be government owned or regulated.

The other Ofgem suggestions include:

  • setting a minimum carbon price to encourage investment in "green" technology
  • obliging suppliers to demonstrate how they would cope with threats to supply
  • tenders for renewable generation that would guarantee a return to investors over a long period
  • suppliers bidding for electricity via auction, from all types of generation, rather than through a negotiated contract with a generator

Energy Secretary Ed Miliband said: "The government is confident that Britain will meet its security of supply needs in the years ahead."

He said low-carbon schemes were in place for the period up to 2020 but for the longer term the country's "needed to be a more interventionist energy policy".

"The scale and upfront nature of the low-carbon investment needed is likely to require significant reform of our market arrangements to deliver security of supply in the most affordable way," he said.

He added that proposals, which would be influenced by Ofgem, would be published at the time of the Budget.

Greg Clark, the Conservative's energy spokesman, said the report was the result of the government neglecting energy security.

Alistair Buchanan, Ofgem: "Domestic prices will go up by around 20% by 2020"

"The result is that we are cast back to the 1970s, facing the prospect of power cuts for the first time in over 30 years," he said.

"It is a sign of desperation that the regulator, which is supposed to execute government policy, is having to urge the government to adopt a policy for energy security."

Liberal Democrat energy spokesman Simon Hughes said an urgent programme was needed to insulate homes and grow renewable energy.

"We need to plan for maximum independence in energy for Britain and maximum independence in energy for Europe," he said.

"In the meantime, the regulator needs to make sure fuel prices are fair prices and that the energy companies stop the regular exploitation of vulnerable customers."

Nick Winser, of the National Grid, said: "The current market framework has served us well, but it makes simple common sense that it will have to change to meet the big challenges ahead."

Ian Parrett, an analyst at Inenco, said: "The bottom line is that we have left it too late to bridge the generation gap that is fast approaching.

"Delays in new generating capacity and the lack of levels of investment required to bring new generating capacity on-stream have put us in this situation, with the forced shutdown of older, coal-fired generating plants now looming on the horizon. The impact that will have is very worrying."

Ofgem is the regulator for mainland Britain, with a separate body in place for Northern Ireland.



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