UK energy prices are set to rise as global demand for gas increases, says Ofgem Chief Executive Alistair Buchanan.

Writing in the Telegraph yesterday (19 February), Buchanan argued that UK energy supplies will be squeezed in the near future as ‘about 10 per cent of our current generation stock goes next month as coal and oil-fired power stations close earlier than expected to meet environmental targets’.

Drawing on Ofgem’s October report, ‘Electricity Capacity Assessment 2012’, Buchanan warned that unless alternative electricity supplies are found to meet increasing demand, the UK could find itself facing blackouts by 2015.

Energy ‘roller-coaster’

He wrote: ‘If you can imagine a ride on a roller-coaster at a fairground, then this winter, we are at the top of the circuit and we head downhill – fast. Within three years, we will see the reserve margin of generation fall from about 14 per cent to less than five per cent. That is uncomfortably tight.

‘National Grid has managed one-off shortages in the past in a professional way. It will face a tougher challenge over the next few years because of the possibility of a prolonged lack of spare power station capacity.’

This, Buchanan argues, may mean higher prices for consumers ‘in the battle to keep the lights on’.

Buchanan says his warning is based on several factors. The EU's Large Combustion Plant Directive (LCPD) restricts the level of emissions combustion plants built after 1987 may legally produce. Plants built before this date are not legally obligated to restrict their emission levels, but are restricted to 20,000 'running hours' between 2007 and 2015, by which time all LCPD plants must close.

According to Buchanan, these closures would see UK’s current generation stock fall by about 10 per cent in March 2013.

Coupled with increasing demand for gas across Europe and Asia, and a perceived lack of alternative sources (‘Wind has also been hit by the financial crisis and it will take time to reach a critical mass; nuclear will not be with us until well after 2020; and carbon capture and storage technology is still in its infancy’), Buchanan argues that gas is the only viable technology left to meet UK’s energy demands.

‘Ofgem estimates that, by 2020, 60 per cent to 70 per cent of our generation may have to come from gas to fill the gap. That’s up from about 30 per cent today’, he continued.

Gas Generation Strategy

Buchanan’s insistence on increasing reliance on gas mirrors the Coalition government’s Gas Generation Strategy, set forth in December 2012. The strategy outlines the government’s aim to maintain levels of energy generation.

The strategy has been lambasted by David Kennedy, Chief Executive of the Committee on Climate Change, who said that it was neither sensible nor “compatible with meeting carbon budgets and the 2050 [emissions reduction] target”.

The complaints mirror those made in November 2012, when government published its Energy Bill, which failed to include any target for decarbonisation by 2030. The bill did, however, lay out plans for a Capacity Market designed to ‘ensure the lights stay on even at times of peak demand’.

Buchanan’s forecast ‘no surprise’

Commenting on Alistair Buchanan’s article, Minister of State for Energy John Hayes said that the forecast of an electricity shortage came as “no surprise”.

“Alistair Buchanan’s remarks come as no surprise, because we know that around a fifth of our ageing power stations are due to close over the next decade. We are determined to secure investment in new plant. That’s why we are stepping up to the plate, by reforming the electricity market through the most radical Energy Bill in a generation, to ensure our energy security and to keep the lights on.

“These fundamental reforms will incentivise a record £110 billion of private-sector investment in new power generation – in renewables, new gas, nuclear and carbon capture and storage. Investing in a diverse energy mix will secure our energy future, and ensure we insulate consumers from the fluctuating price of fossil fuels.”

Alternative energy

However, Friends of the Earth Energy Campaigner Guy Shrubsole responded to Buchanan’s warning with a call for an end to reliance on fossil fuels, saying: “Ministers must urgently tackle rocketing fuel bills by introducing a comprehensive energy saving programme and ending the nation's reliance on increasingly costly fossil fuels.”

He concluded: “The Energy Bill currently going through Parliament must be amended to include a clean power target to give businesses the confidence to invest in the UK's huge wind, wave and solar resources, create jobs, and provide energy we can all afford."

Dale Vince, found of green energy company Ecotricity, likewise insisted that the government must now turn to alternative forms of energy to keep energy bills down: “The quickest and best way to reduce our dependence on imported gas and plug this generation gap is through renewable energy. This is an investment, not just in clean energy, but in energy security.”

He argued that “the increasing cost of imported gas has been overwhelmingly responsible for rising energy bills in British homes”, adding: “[I]n the 12 months leading up to March 2012, the average UK energy bill increased by £150 and around £100 of that was simply due to the higher wholesale cost of gas. In contrast, support for building onshore wind cost each household less than £10 last year.”

He concluded: “We have 40 per cent of Europe’s wind resource. Let's use our free inexhaustible wind resource to create jobs, industries, clean energy and independence from global energy markets.”