Ofgem warns of energy shortfall

5 October 2012
By Rachael Fergusson
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Ofgem warns of energy shortfall

Ofgem warns of energy shortfall 

The UK is facing the rising risk of an energy shortfall within three years, energy regulator Ofgem warned today.

Ofgem said energy supplies were being hit by tough European Union environmental laws and the closure of ageing coal- and oil-fired power stations. It predicts the amount of spare capacity in the UK could plunge from current historic high levels of 14 per cent to 4 per cent in 2015/16, leaving the UK at risk of significant shortfalls.

The government welcomed today's report and said it hoped reforms as part of its forthcoming Energy Bill would ensure supply was secured.

Edward Davey, State for Energy and Climate Change Secretary, said: "Security of electricity supply is of critical importance to the health of the economy and the smooth functioning of our daily lives.

"That is why the government is reforming the electricity market to deliver secure, clean and affordable electricity."

Ofgem's report, its first annual electricity capacity assessment, comes three years after findings of the regulator's Project Discovery study, which warned that energy supply shortfalls would lead to higher customer bills.

Ofgem said in 2009 that customer bills may need to rise by 14 per cent to 25 per cent to pay for investment to increase Britain's energy systems by developing more low-carbon power stations.

Alistair Buchanan, chief executive of Ofgem, said: "The unprecedented challenges facing Britain's energy industry, identified in Ofgem's Project Discovery, to attract the investment to deliver secure, sustainable and affordable energy supplies for consumers, still remain."

Today's report reveals the UK could be left with a shortage equivalent to 1,000 households in 2015/16, or 9,000 households in extreme circumstances.

It estimates the chance of network operator National Grid having to cut power to customers would stand at one in 12 years in 2015/16.

But National Grid would cut power to businesses and industrial customers before households, which significantly reduces the risk of families being left in the dark, according to Ofgem.

It also has contingency plans in place to avoid interrupting supply to customers, by asking power stations to maximise generation and also by importing more power from Europe.

The Government is also looking at plans to pay gas-fired stations to ensure they are on stand-by to generate enough demand whenever required to boost the spare capacity.

Mike Clancy, general secretary designate at union Prospect, said: "This report highlights how imperative it is for the government to act now and introduce electricity market reform that ensures the programme of new nuclear build and other vital energy infrastructure projects, such as carbon capture and storage, are attractive enough to secure the long-term investment they require."

But Greenpeace policy director Doug Parr said the report "sends out a clear warning that we need to reduce demand" rather than build new power stations.

Audrey Gallacher, director of energy at Consumer Focus, called on the government to protect consumers from the threat of soaring bills, as well as energy shortages.

She said: "Consumers cannot write a blank cheque to cover the costs of new energy.

"To avoid this happening the government and regulator must ensure that the costs passed on to consumers are fully transparent and rigorously scrutinised."

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