Alistair Buchanan is not the sort of chap to exaggerate. So when the out-going chief executive of Ofgem warned last week that the UK is facing higher energy prices and a knife-edge, Waterloo-style battle to keep the lights on, then we should start to stockpile the candles.
As Buchanan put it, imagine we are on a roller-coaster at a fairground and that this winter we are at the top of the loop but then we start heading down. In three years time, he forecasts the reserve margins of generation will have fallen from 14 per cent to 5 per cent leaving power supplies perilously close to the edge; our Waterloo moment.
There have already been dodgy moments this year – on January 16 – when the National Grid had to find extra power to light up a million homes because of the cold and unplanned outages. The extra current came from Fawley – an oil-fired station in Hampshire. Next year it won't be here to plug the gap. Nor will another 10 per cent of our power capacity because several more ageing coal-fired gas plants and oil power stations go off-stream next month, much earlier than expected, partly to meet tough new carbon emission requirements.
This means that from 2015 onwards Britain doesn't have enough power generation to keep the country wired. While Ofgem reckons supplies for domestic customers should be OK – at higher prices – it won't make promises for power stations or big industrial users.
Even if nuclear gets off the ground it's not going to be ready for at least another decade, if at all. Power from renewable sources – off or onshore wind or biomass – is only running in single digits and is not secure. Thankfully, on-shore wind is tailing off but even the slightly more palatable off-shore wind is becoming more uneconomic as the Government cuts subsidies. Centrica – which has already pulled out of nuclear – is in two minds about developing its next generation of off-shore wind power as the returns are so marginal.
So gas is the alternative. About 30 per cent of our electricity comes from gas and Ofgem estimates this will have to double to have sufficient supplies. But here's the catch. Our gas supplies are declining while prices on the world market are shooting up because of booming demand; Asian liquefied natural gas prices are 60 per cent higher than our own. Shale gas in the UK could be the holy grail – as the US is showing – but it will take years to get it out of the ground safely.
Sir Roger Carr, Centrica's chairman and the president of the Confederation of British Industry, is another who doesn't scare easily. For him, new gas plants, more gas imports and – longer-term – shale gas, together with greater focus on efficiency are the only ways out.
Yet this perfect storm is not unexpected. It's been brewing for years and is the legacy of successive governments playing politics over energy. Over the past decade there have been seven energy secretaries – and at least five white papers – all playing different cards with energy strategy. It's a shameful way to behave and the politicians deserve being trumped for their myopic populism.
Its time to take the politics – if not religion – out of energy policy; whether you prefer wind over coal over nuclear has nothing to do with ideology but everything to do with safety, efficiency, cost, as well as sustainability. What we need is an independent commission – headed by someone like Buchanan and experts from industry – to stake out a thoughtful and long-term strategy and stick to it so that businesses can plan for the future.
And the public? Well, the options are simple: pay higher prices, follow The Good Life example and have your own power supplies or freeze. Hardly a vote-winner.
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