Ofgem: 'Only state intervention can prevent power cuts'

Privatised electricity and gas network will not deliver enough energy

Britain faces power cuts over the next decade unless ministers take greater control of the privatised gas and electricity network, the energy regulator warned yesterday.

In a gloomy assessment of the UK's crumbling power stations, Ofgem said there were serious doubts that the current system deriving from liberalisation 20 years ago would generate enough power by 2020.

Calling for greater state intervention, it also warned that investing £200bn on a secure, green network would push up domestic bills. Ofgem has previously forecast rises of between 15 and 60 per cent, but the price-comparison website uSwitch.com claimed the regulator was underestimating the impact on bills, which it said might reach £4,733 a year by 2020.

It is the first time Ofgem has admitted that Britain's private network will not meet future demand and is a warning to ministers to make up their minds quickly about the future shape of the system – or risk blackouts. Industrial users were cut off last month as the grid conserved supplies for homes during heavy snow. Privately, Ofgem stressed that companies rather than householders would be in the front line of any future cuts in supply, but warned that homes would have to fund the investments.

Fossil fuel power stations are ageing and many nuclear plants will be decommissioned in coming years as the UK expands solar and wind power to fight climate change. Ed Miliband, the Energy Secretary, who will announce his plans at the Budget, said the Government was confident it would be able to meet future needs. "However," he added, "for the longer term, Britain will need a more interventionist energy policy."

Outlining the shape of the network by 2020, Ofgem suggested there should be a minimum price for carbon to ensure greener power and stiffer fines for suppliers failing to generate enough supply. In the most drastic scenario – a semi-privatisation – it envisaged the creation of a new central buyer to control the market. Ofgem said: "The unprecedented combination of global financial crisis, tough environmental targets, increasing gas import dependency and the closure of ageing power stations has combined to cast reasonable doubt over whether the current energy arrangements will deliver secure and sustainable energy supplies." Its chief executive, Alistair Buchanan, said there was a consensus "that leaving the present system of market arrangements unchanged is not an option."

Industry body Energy UK expressed concern that "further political and regulatory uncertainty" might discourage investment. Consumer groups warned that customers were already struggling to pay bills. Ann Robinson, at uSwitch, said: "This is one of many recent announcements from Ofgem, which have gradually lifted the lid on what household energy bills are expected to look like in the future. When you add the pieces together it's a big wake-up call."

Shadow Energy Secretary Greg Clark said: "This is a devastating verdict on Labour's 13 years of neglect of energy security. The result is we are cast back to the 1970s, facing the prospect of power cuts for the first time in over 30 years."

Power politics: Where energy of the future will come from

Gas Thanks to the "dash for gas" in the 1980s and 90s, gas is the greatest source of power, contributing 36 per cent of the fuel mix. But with North Sea reserves falling sharply, and global demand for liquefied supply intensifying, the UK is wary of having too many gas plants.

Coal Coal still rules, generating 35 per cent of UK power. But many plants are coming to the end of their lives and new stations are controversial, given their high greenhouse emissions. E.ON abandoned its plan for a new coal-fired station at Kingsnorth, Kent, last year after environmental protests.

Nuclear The last nuclear power plant was built in 1995 and most of the ageing facilities will be decommissioned by 2023. Last year, the Government approved 10 new nuclear power stations but they are unlikely to come into operation before 2018. One fifth of the UK's power comes from nuclear.

Renewables Privatised suppliers have failed to meet their renewable targets and only 5.5 per cent of the UK's energy comes from wind, solar, hydro and other green sources. Ministers plan thousands of offshore wind turbines, but they are more expensive than fossil or nuclear alternatives.