Power Generation

UK could face power cuts unless energy market reformed, says regulator

The UK needs to take prompt action to reform its energy market to stave off power cuts, rising energy bills and achieve climate change target, says regulator.

The country’s energy regulator Ofgem says that a combination of the global recession, new environmental targets, increased dependency on gas imports and the closure of ageing power stations could be too much for the current system.

The report out today, Project Discovery, warns that without prompt action there is reasonable doubt over whether the current energy set-up in the UK will be able to supply “secure and sustainable” power beyond 2015.

In the future, rising gas and electricity bills could find increasing numbers of consumers unable to pay for adequate levels of energy to meet their needs.

Ofgem has put forward a range of options to tackle the issue, ranging from a minimum carbon price to encourage investment in low-carbon technologies to a radical shift away from the current free-market model to a centralised energy buyer.

Other suggestions include an obligation on suppliers and the National Grid to put plans in place to cope with threats to the security of supply and a system of tenders to give investors a guaranteed rate of return on renewable energy installations.

“All the facts point to the need for reforms now to provide resilient supply security,” says Ofgem chief executive Alistair Buchanan. “Acting earlier will also help keep costs as low as possible for consumers and businesses.”

The UK needs to find up to £200 billion in investment to overhaul the energy market, says Ofgem, and will require new legislation and direction from the Government.

“This report serves as a stark warning that existing policy will not deliver the balanced energy mix needed to provide security for the UK, help cut carbon emissions, and maintain competitive prices,” says John Cridland, deputy director-general of the CBI, the UK’s business lobby organisation.

The country needs new nuclear plants, clean coal, gas generation, wind and other renewable sources to be brought online quickly, along with more gas storage facilities, he says, all of which will require a massive private-sector investment underpinned by clear Government policy.

The Energy and Climate Change Secretary Ed Miliband has responded to the report, saying the Government is confident the country can meet its security of supply needs in the years ahead through the implementation of the Low Carbon Transition Plan. Beyond 2020, however, he admits the situation may be different.

“For the longer term, Britain will need a more interventionist energy policy,” he says. “The scale and upfront nature of the low carbon investment needed is likely to require significant reform of our market arrangements.”

For further information:
www.ofgem.gov.uk/
www.ofgem.gov.uk/Markets/WhlMkts/Discovery/Pages/ProjectDiscovery.aspx
www.cbi.org.uk/
www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspx

03 February 2010

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