Analysis: Coal has gone. Gas is low. So is Britain running on empty?

An energy revolution is underway, which means traditional sources of power will have to be replaced within the next few years

The closure of Britain's biggest mining complex at Selby in North Yorkshire, with the loss of more than 5,000 jobs, is yet another reminder of the looming crisis in our energy supply. King Coal has long since been dethroned as the nation's favourite fuel but the effects of its overthrow are still being felt more than two decades after the UK decided on a "dash for gas".

The closure of Britain's biggest mining complex at Selby in North Yorkshire, with the loss of more than 5,000 jobs, is yet another reminder of the looming crisis in our energy supply. King Coal has long since been dethroned as the nation's favourite fuel but the effects of its overthrow are still being felt more than two decades after the UK decided on a "dash for gas".

Britain is the only G7 country other than Canada that is still largely self-sufficient in energy, thanks to its huge reserves of North Sea gas and oil. But that is about to change. Within the next few years – in 2005, according to some government analysts – the UK will for the first time in living memory have to become a net importer of fuel if it is to keep its lights from going out.

North Sea oil and gas are both running low, coal mining has been diminished to a point where it is becoming unviable, and the second most important source of electricity – nuclear energy – is too expensive to warrant the building of further power plants.

Without importing huge amounts of gas and oil from as far away as Russia, we will face an unprecedented shortfall in energy in the coming decade.

On top of this radical transition in Britain's energy supplies, the country is faced with a difficult commitment to generate more and more electricity from renewable sources. Officially, our target is that 10 per cent of the nation's electricity should be generated from renewable sources such as wind, tidal or solar power by 2010.

At the same time, the UK is committed to reducing the amount of carbon dioxide it pumps into the air as part of the international effort to combat global warming. The Royal Commission on Environmental Pollution wants the Government to adopt a more ambitious strategy of cutting carbon dioxide emissions by about 60 per cent of its current levels by 2050.

Tony Blair has promised to publish an energy White Paper later this year that will address these long-term and seemingly intractable problems. One of the critical issues is how to ensure that Britain's new sources of energy – principally supplied via gas pipelines from eastern Europe – will remain secure in a world that is fraught with political instabilities.

How much easier it was half a century ago when Britain's coal mines supplied about 90 per cent of our energy needs, with crude oil providing the rest. Things began to change rapidly, however, with the advent of nuclear power plants in the mid-1950s, and the subsequent discovery of North Sea gas, leading to the dash for gas in the 1980s when there was a rush to replace coal-fired power stations with their modern gas-fired equivalents.

Natural gas transformed the energy market and sounded the death knell for coal, which once seemed indomitable. Gas-fired power stations were not only cleaner, they were also more efficient and cost-effective. Who would have predicted this energy revolution in 1950?

But trying to forecast the future in terms of energy supply and demand is a notoriously difficult process, as the discovery of North Sea gas proved.

In its recent energy review, published in February, the Performance and Innovation Unit of the Cabinet Office admitted that the history of such reviews was littered with failed attempts to see beyond the next few years. "This review is unlikely to prove an exception," the unit acknowledged in its report. "The important thing is to reflect this uncertainty in policy-making, so that it is flexible in the face of new information. It would be wrong to try to plan the energy system, but equally, given the often long lead times within the energy system, a long-term vision is sometimes needed if we are to avoid commitments which may be found wanting as policy needs change."

Natural gas fuelled the British economy through the economic boom years of the 1980s and 1990s but this is likely to change. Although the UK is still a net exporter of natural gas, there are times during peak demand when we have to import foreign gas to meet our needs.

The Department of Trade and Industry estimates that by 2010 the UK will have to import one third of its gas requirements. This is expected to rise to 80 per cent of its demands by 2020.

The story for oil is similar. At present, the UK is a significant exporter of oil, but based on current known reserves our production of oil is expected to fall by a half by 2010. By 2020, we will be producing only 20 per cent of the oil we now produce. Clearly, within 20 years Britain will go from a net exporter of oil to a big importer.

Coal, which presently accounts for 15 per cent of our energy supplies, will continue to decline in importance as the existing reserves in deep mines are progressively exhausted. The industry will also have to compete with even cheaper coal from abroad, making it increasingly likely that existing mines will go the way of Selby, which is to be closed completely over the next 20 months.

An important question is what will happen regarding nuclear power. On current forecasts electricity generation from nuclear power plants is clearly set to fall to a fraction of what it is now, as old plants are decommissioned with no new ones being built to replace them. As things stand, no one is planning to build new nuclear plants in Britain – and the Government insists this is a decision for the private sector – but that could change if changing conditions make nuclear power economically attractive.

"The economics of building new nuclear plants do not stack up at the moment, but they are not far from stacking up," said Professor Eric Ash, chairman of the Royal Society's energy policy advisory group.

Introducing carbon taxes to penalise organisations that burn fossil fuels could be one measure that tips the balance in favour of nuclear power. "People who burn fossil fuels can do so for free. Everybody who's studied this problem says this had to change and one way is by some form of carbon tax," Professor Ash said.

"The polluter has had it all his own way and something needs to be done about it," he added.

A carbon tax aimed at limiting the effects of global warming would also encourage the development of renewable sources of energy, which for decades have suffered from under-investment in research. Environmentalists have long argued that if they had been given the research funding that the nuclear industry has enjoyed, wind, tidal and solar energy would be far better placed to take up the energy slack left by the demise of Britain's coal, gas and oil.

The Performance and Innovation Unit has recommended the expansion of the renewables target from 10 per cent of power generation by 2010 to 20 per cent by 2020. This expansion would not be without costs, however; the unit predicts that electricity prices would have to rise by up to 6 per cent more than they would have otherwise.

Which brings us finally to what this will all mean to the average household. Relying on other nations for energy is not in itself an untenable prospect – after all, most developed countries do it. But it will mean that the UK has less control over its energy costs, which could lead to a rise in the number of households falling into "fuel poverty" – officially defined as when a family spends more than 10 per cent of its income on heating its home to an adequate standard.

Cheaper electricity and gas have helped to reduce the number of households falling into fuel poverty from about 5.5 million in 1996 to fewer than 4 million in 2000. It remains to be seen whether Russian gas comes with the sort of price tag that can prevent a future rise in the number of British families struggling to keep warm.