Utility giant RWE warns of UK electricity shortages

Major electricity companies yesterday warned the Government the UK will face a supply crisis within a few years unless the industry gets greater clarity on energy policy.

Major electricity companies yesterday warned the Government the UK will face a supply crisis within a few years unless the industry gets greater clarity on energy policy.

RWE npower, the UK arm of the German-based utility giant, said the sector needed guidance on carbon emissions allowances for the 2008-12 period. In the absence of this, it was impossible to make decisions to invest in generating capacity, and power shortages would become apparent about 2010.

Andy Duff, RWE npower's chief executive, told a conference in London on energy organised by the union Amicus: "These uncertainties are undermining industry confidence with the result that no one is investing. It is not yet too late, but the Government must act fast to set out the ground rules for the ongoing running of our fossil fuel plant. Otherwise, over the next few years, we will see Britain's capacity margin dwindle to a level where security of supply is in real jeopardy."

ScottishPower's chief executive, Ian Russell, told the meeting investment was needed now in networks, generation and engineering skills "to ensure that in two or three years' time, security of electricity supply in the UK is not threatened".

After the conference, Mr Duff said the German government had been "much more coherent" about the period after 2008, the second phase of the European Union's emissions trading system (ETS). "We want clarity, not support or special favours," Mr Duff said. We need the phase two [carbon] allowances to be firm now." He said the UK power sector needed to work out the future price of carbon emissions - allowances can be bought and sold - to make investment decisions. Given the long lead times required to build power stations or to "clean up" coal-powered stations, the decisions needed to be taken now, he said,

Turning to the first phase, which runs from 2005 to the end of 2007, Mr Duff said: "We are the only country in Europe to put the entire burden [of emissions reductions] on the power sector. That is a big risk to take on something as important as electricity supply." Derek Simpson, the general secretary of Amicus, called for an "urgent" review of energy policy that would consider building nuclear stations.

Mike O'Brien, the Energy minister, told the conference that on the nuclear issue the Government was "not for it or against; we are keeping our options open". He said nuclear stations were not economically viable at present and waste disposal also had to be resolved.

A spokesman for Mr O'Brien said the Government would start consulting "in a couple of months" on emission allowances for the period after 2008.