Ofgem boss Alistair Buchanan put DECC on a defensive footing by painting a bleak picture of sharp energy bill rises in the next few years – prompted by the UK’s electricity generation capacity diminishing whilst global demand for gas supplies continues to rise.
Writing in the Daily Telegraph, he said: “We have to face the likelihood that avoiding power shortages will also carry a price. Within three years we will see reserve margin of generation (spare capacity) fall from below 14 percent to below five percent. That is uncomfortably tight.
“About 10 percent of our current generation stock goes next month as coal and oil-fired power stations close earlier than expected to meet environmental targets.”
He added that by 2020, the UK is estimated to increase its proportion of electricity generated from gas from 30 percent to 60-70 percent. But with global demand tightening, and the UK’s indigenous supplies shrinking despite the promise of new shale reserves, Britain will be forced to pay much more on the world market.
“Global availability of gas in the middle of the decade is set to tighten due to several factors. We no longer expect gas from Russia’s large Shtokman field. Demand will also grow rapidly in Asia, with China’s gas consumption alone growing at 20pc each year.
“It is true that the US has transformed its energy market thanks to shale, but in our time-frame, when Britain will rely on gas for its power stations, this is not going to happen on any significant scale either here or elsewhere in Europe.”
DECC has responded to the possible threat made by Ofgem of power cuts and price hikes by pointing to energy efficiency schemes such as Green Deal and reforms to the electricity market due under the Energy Bill.
A spokesman said that no energy gap would occur as £110bn of private investment is used to fund new gas, nuclear and renewable capacity, whilst efforts are made to reduce demand at the same time.
“Investing in a diverse energy mix will help us to insulate consumers from the high price of wholesale gas, which drives up bills.
“As well as investing in new infrastructure, we need to reduce the amount of energy that is wasted from our leaky homes. Our energy efficiency programme, the Green Deal will help consumers lower their bills by making their homes more energy efficient.
“The reforms we are introducing to the electricity market through the Energy Bill are aimed at plugging this gap in order to keep the lights on. We have legislated to introduce a Capacity Market that will help guard against blackouts and ensure there is sufficient supply when margins get tight.”