British energy supplies are on a “roller-coaster” heading “downhill fast”, the boss of the regulator Ofgem has said, in a stark warning to consumers and the Government to brace for higher prices.
Alistair Buchanan, chief executive of Ofgem, said the combination of UK power plants closing, foreign gas supplies shrinking, and demand rising, has made British energy reserves “uncomfortably tight”.
Writing in The Daily Telegraph ahead of an industry lecture on Tuesday, Mr Buchanan has warned: “We have to face the likelihood that avoiding power shortages will also carry a price.”
He writes: “If you can imagine a ride on a roller-coaster at a fair ground, then this winter, we are at the top of the circuit and we head downhill fast. Within three years we will see reserve margin of generation fall from around 14 per cent to below 5pc. That is uncomfortably tight.”
Ofcom is supportive of the Government’s effort to reform the electricity market and gas supply in the Energy Bill. However, he argues that the reforms to the electricity supply will take too long to avert price rises.
“About 10pc of our current generation stock goes next month as coal and oil fired power stations close earlier than expected to meet environmental targets,” he has written.
He argues that gas is a big part of the solution but warns: “just when we need more gas, world demand for gas is set to tighten.”
Expected gas supplies from Russia’s Shtokman field have been cancelled while demands from China are growing at 20pc a year. Asian gas prices are 60pc higher than in the UK.
As for shale, Mr Buchanan says, “no one doubts that there is plenty of gas out there, but what is critical to Britain is how much will be available over the next five years and how much will we have to pay for it to ensure it comes here.”
He called for more focus from the Government. “We may well be able to rely on renewables, clean coal and nuclear, but the government wants to ensure we can get to this vision in an orderly way.”
Graeme Leach, Chief Economist of the Institute of Directors, backed Ofgem’s warnings: “It is a cause for great concern that without meaningful action our energy supply may become unreliable, unaffordable or both...we need to get moving on the fundraising, infrastructure and regulatory requirements to make them happen sooner rather than later.”
Ann Robinson from uSwitch.com said consumer can’t take too many price rises since average household energy bills have already risen 159pc since 2004. “As rocketing bills show little sign of slowing, the Government needs to pause and consider the impact that large scale investment is having on consumers and the affordability of household energy. Almost seven in ten say that the Government has not struck the right balance between ‘greening’ energy supplies and households being able to enjoy affordable energy. As the Energy Bill rapidly progresses the Government has to take affordability into consideration.”
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