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< National Grid proposes interconnector with Norway | 'Urgent and radical action needed' on climate change >

Ofgem sets out fears over energy supplies

Written by: Janet Wood | 09 October 2009

Customers will be paying sharply higher energy bills by 2020 unless they dramatically cut their usage, because energy prices will rise by up to 25 per cent and could spike much higher in the interim. In the second half of the coming decade energy capacity margins could sink lower than they have ever been, and "life could get pretty cold".
That was the message from Alastair Buchanan, chief executive of energy regulator Ofgem, as he published a consultation over the UK's energy future that could result in fundamental changes in the UK's energy market.
The consultation - dubbed "Project Discovery" - comes in the face of shrinking capacity in the UK electricity generating market that will leave little generation margin until new-build supplies are completed. Buchanan pointed out that investment of up to £200 billion would be required for the supplies planned to come on line in the next decade. He said the UK market had to provide the right investment climate for that raft of new generation, despite the recession.
The regulator also highlighted a switch in gas supplies, because North Sea supplies were dwindling and the UK would increasingly rely on piped gas from sources such as Russia and liquified natural gas (LNG) from world sources. Buchanan noted that the recession had delayed investment in some Russian gas fields that the UK had anticipated coming onstream.
Although the UK has invested in LNG import facilities, the regulator said he wanted opinions on whether current market structures would bring supplies into the country.
The regulator set out potential routes for the coming decade in four scenarios - Green stimulus, Green transition, Dash for energy and Slow growth. In all scenarios, he said, carbon dioxide emissions would fall, and in all prices would rise. The only way domestic or industrial consumers could maintain keep bills down would be to dramatically improve energy efficiency.
Energy and Climate Change Secretary Ed Miliband said: "The most important thing about Ofgem's report is that it emphasises the need to - as we are doing - get on with new nuclear power, new renewables, including wind which is unpopular with some people, and clean coal. And we are doing all of those things.
"Reforms to the planning system and convincing the public about renewable technologies are also part of the strategy. However Government will need to intervene to ensure Britain's energy security and transition to greener supplies.
"I think Government does need to play more of a role if we are going to get the low carbon transition and if we are going to get security of supply. But I'm confident that we can do it."
More comments below.

Download Project Discovery documentation here.

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Tags: electricity, energy, gas, Ofgem

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  1. “The scale of the challenge highlighted in the OFGEM paper is consistent with the research released in Ernst & Young’s recent report (Securing the UK’s energy future – seizing the opportunity; July 2009)

    “To meet this investment challenge, crucial decisions that will set the investment framework for projects that will ultimately deliver the UK’s energy objectives have to be made well before 2015.”

    “Given the long lead times involved for most of the investment projects required, from gas storage to new nuclear plant, confidence in the policy framework needs to be high by early 2011. The level of industry-wide investment required equates to roughly £13bn a year from today, and the years to 2015 will be absolutely critical in determining whether the UK will get close to meeting its 2020 commitments, and be on track towards the even tougher targets thereafter.”

    “With so much to lose if the investment targets by 2015 are not met, momentum needs to start ramping up from today.”

    “Domestic customer bills are likely to rise as a result. This reflects a structural change in the cost base of the UK’s energy industry as infrastructure investment is made to ensure security of supply and ‘green’ our energy sources.”

    Tony Ward, partner in Ernst & Young’s power and utilities team | 09 October 2009, 05:42 PM

  2. “Wind, wave and tidal energy can deliver both energy security and price stability. Putting our faith into fossil fuels could irreparably damage the environment and still not save us any money. This study clearly shows that we must back the Renewable Energy Strategy and deliver nationally on our share of the pan-European carbon reduction targets. Doing nothing is simply not an option.”


    Maria McCaffrey, chief executive, BWEA | 09 October 2009, 05:44 PM

  3. “We welcome this very detailed review, which is a valuable contribution to the energy debate.

    “National Grid is playing a fundamental role in delivering solutions to many of the issues Ofgem flag up, but it’s vital that energy policy helps us and the rest of the industry deliver through this energy revolution.

    “The key role Ofgem can play is to provide the framework that can allow the huge, but vital, investments to be made in the timescales needed. I hope that the consultation around Project Discovery will help them come forward with a good set of proposals.”

    National Grid | 09 October 2009, 05:45 PM

  4. “We have been saying for many years that we need massive investment in the UK’s energy infrastructure. Companies are already investing in new plant and they want to do more. Over 5GW of new capacity has been granted planning permission during 2009. However, the sums of money required for this investment are massive - £200billion is needed in the energy sector over the next decade.

    It is vital that the UK is attractive for investment in energy infrastructure. Important too that the framework set by government enables companies to make the most cost-effective investments".

    David Portter, chief executive, AEP | 09 October 2009, 05:46 PM

  5. “We can’t allow a situation where we have to choose between paying a king’s ransom for our energy or face the lights going out.

    “The way consecutive Governments have passed the buck on this issue is tantamount to negligence. By ignoring security of supply for so long, they’ve saddled consumers with what could be a colossal bill.

    “It’s good that Ofgem has finally looked at this issue but what is needed now is quick and decisive action to ensure that consumers have safe, secure and affordable energy.”

    Which? energy campaigner, Dr Fiona Cochrane | 09 October 2009, 05:48 PM