Britain's looming energy crisis

Britain: Price hikes and power cuts: Regulator's bleak warning of future energy crisis

The chief exec of Ofgem said Britain faced a “horrendous” energy crunch - with demand for gas expected to soar as supplies dwindle

Mirror,

19 February, 2013

A LOOMING energy crisis threatens to unleash a new wave of price hikes for millions of households, the industry regulator warned today.

Alistair Buchanan, chief executive of Ofgem, said Britain faced a “horrendous” energy crunch - with demand for gas expected to soar, just as supplies dwindle.

The gap increases the danger of blackouts for businesses as the safety cushion of spare electricity becomes dangerously slim.

The risks have been heightened by a number of polluting power stations due to close by April, which is much sooner than expected.

The four plants, plus one that has already shut, account for 10% of the UK’s electricity needs but have been running flat-out as operators take advantage of cheap coal prices to boost their profits.

However, it means the country will have fewer power stations to rely on when demand peaks, such as in a severe winter.

Ofgem says this safety margin of spare capacity will shrink from a comfortable 15% now to less than 4% within three years.

Mr Buchanan, who steps down in June after 10 years in the post, said: “We have to face the likelihood that avoiding power shortages will also carry a price.

“If you imagine a ride on a rollercoaster at a fairground, then this winter, we are at the top of the circuit and we head downhill - fast.”

Successive governments had been banking on new nuclear power stations, gas-fired plants and renewable energy such as wind turbines to boost supplies.

But the Coalition’s nuclear plans are in disarray after a series of firms pulled out, while a dash for gas will exposed the UK to global pressures.

The UK will, in particular, have to rely increasingly on liquefied natural gas - or LNG - which is transported in vast super tankers.

But with demand growing from countries such as China, the fear is that the UK will miss out on shipments - or pay top whack for what is available.

Mr Buchanan, who steps down in June after 10 years in the post, said it was inevitable that prices will rise as supply struggles to keep up with demand.

“We’ve got to go shopping around the world for our gas,” he said.

“It’s just horrendous serendipity that just as we have a squeeze on our power and turn to gas, the global markets have a squeeze,” he added.

The threat of further price rises will come as a blow to households left reeling by a wave of inflation-busting bill increases.

The average duel fuel bill in the UK is £1,420 a year, an increase of 18% since 2009.

But while customers are feeling the pinch, energy companies have boosted their profits.

According to Ofgem, the profit margin on the average bill has shot up from £45 a year last October to £115 a year now.

Two of Britain’s biggest energy firms - EDF Energy and Scottish Power - last week announced combined annual profits of nearly £3billion.

British Gas owner Centrica is expected to confirm next week that annual profits rose from £2.4bn to £2.7bn.

The threat of price rises follows a warning from Ofgem last October that, come 2015/16, there is a one in 12 risk that businesses would be affected by blackouts.

It said there is “little” risk of households being hit, as supply to energy-hungry companies like steelworks would be cut first.

Which? executive director Richard Lloyd said consumers will be “alarmed” at Ofgem’s price warnings.

He said: “After another winter of inflation-busting price hikes, the rising cost of energy is already one of the top financial concerns for hard-pressed households.

“The Government should ensure consumers are properly protected from unaffordable misery generated by today’s broken energy market, and give people confidence that they are not writing the energy industry a blank cheque for years to come.”

Consumer Focus chief executive Mike O’Connor said: “We need to invest but we also need to think about how we protect the most vulnerable consumers who can least afford higher prices.

“In the long term the best hope is more energy efficient homes.

"We need to do more to ensure our homes do not leak energy and we are calling on Government to use the funds they raise in carbon taxes to insulate our houses to modern standards, saving the poorest in society money on their bills, as well cutting carbon emissions and creating jobs.

“With six million households in fuel poverty, rising to over nine million by 2016, and an increasing proportion of our incomes being spent on essential items like energy, this latest news, while not surprising, is chilling.”

Ofgem claimed it had been warning the Government of the impending supply crisis since 2009, but said the financial crisis set back plans to get alternative power sources up and running.

The banking meltdown had a major impact on the Government’s ability to pay for schemes such as wind power and nuclear, according to Mr Buchanan.

Responding to Mr Buchanan’s comments, Angela Knight, chief executive of Energy UK, the industry’s trade body, said the authorities should “get on with exploring the options for UK shale gas reserves to help energy security and focus on the affordability of energy to households and the competitiveness of British industry”.

The Government said it was acting to prevent any possible “looming energy gap”.

A spokesman for the Department of Energy and Climate Change said: “Our energy system faces significant challenges over coming years, including the closure of around one-fifth of our ageing power stations, so, as Ofgem highlights, we cannot afford to be complacent and may face a looming energy gap.

“The reforms we are making to the electricity market through the Energy Bill and through our gas generation strategy are aimed at plugging this gap in order to keep the lights on.”

Caroline Flint MP, Labour’s Shadow Energy and Climate Change Secretary, said: “With warnings that Britain could become more reliant on expensive energy imports it is more important than ever that we have an energy market that delivers fair prices and works in the public interest.

“Labour has set out plans to break the dominance of the energy giants, open up the energy market, protect vulnerable customers from being ripped off and create a tough new energy regulator with the power to force energy companies to pass on savings to consumers.

“We must also prioritise making Britain’s homes better insulated and more energy efficient.”