Energy in the UK: the coming crunch

Ofgem's CEO gives Oliver Wright a grim assessment of the UK's energy options

Britain’s polluting coal-fired power stations must be kept open to “get us through” dramatic rises in wholesale gas prices over the next seven years – that is the unpalatable opinion of the outgoing head of Ofgem, the energy watchdog. Alistair Buchanan has warned that Britain faces five years of rapidly increasing electricity costs because of rising global gas prices at a time when new sources of energy generation such as renewables and nuclear are not sufficiently developed.

Ministers might need to look at extending the life of some of Britain’s coal-fired power stations unless they could facilitate a “revolution” in energy efficiency, he adds.

Mr Buchanan admitted that his warning on energy prices make him sound like the “grim reaper” but said it was important that consumers had the information they needed to make savings before bills rose: “We want to alert consumers to the fact that around 10 per cent of our (power stations) are coming off-line that could have been running to 2016. There is nothing being actively being built at the moment (and) even if the first new gas plant were to be started now it would not be in operation for four years. Things are going to be very tight in three years’ time.”

Britain currently has around 15 per cent of spare generating capacity but that will fall to below 5 per cent within the next three years. “People have been asking ‘where’s the new nuclear, where’s the clean coal, where’s the carbon capture’. It’s not there and it won’t be there this side of 2020.”

Mr Buchanan, who steps down in June after 10 years in the post, said it was inevitable that prices will rise as supply struggles to keep up with demand: “We’ve got to go shopping around the world for our gas. It’s just horrendous serendipity that just as we have a squeeze on our power and turn to gas, the global markets have a squeeze.”

Mr Buchanan said that part of the problem facing the UK was that environmental commitments to decarbonise the energy sector had been made before the financial crisis.

As a result the cost of capital to build a new generation of green energy has increased considerably and there have also been delays in raising capital.

This means there is now a gap between the point at which the Government is committed to shutting down old power stations and when their replacements will begin working. Combined with a predicted spike in gas prices due to rising demand from countries such as China and temporary restrictions in supply, this will result in significantly higher energy costs.

Mr Buchanan said that to get round this the Government needed to facilitate a “revolution in consumer habits” and encourage people to use programmes like the Green Deal to reduce demand. But he also suggested that the Government could provide incentives to ensure that some coal power stations could be have their life extended.

“Today we have 28 gigawatts (gw) of coal plants. 8gw is going now or shortly then you have 20 left. Only 6 of 20 have been adequately cleaned up to meet the next (environmental) directive that kicks in around 2022.

“Are you better keeping some of the knackered coal on for a few years longer to get us through this tight window or better off promoting gas? That is a question for Government.”

Privately ministers admit that much more needs to be done towards increasing energy efficiency. They have already announced plans to divert up to £1bn into programmes to reduce large-scale energy use and more work is likely in the coming years.

However extending the life of coal power stations would be far more controversial. While some Tories would privately welcome the move if it kept bills down it would face fierce resistance from the Liberal Democrats.

Consumer Focus’s chief executive, Mike O’Connor said the best solution would be to make homes more energy efficient: “We need to do more to ensure our homes do not leak energy and we are calling on Government to use the funds they raise in carbon taxes to insulate our houses to modern standards.”

The Which? executive director Richard Lloyd said consumers would be “alarmed” at Ofgem’s price warnings. “After another winter of inflation-busting price hikes, the rising cost of energy is already one of the top financial concerns for hard-pressed households,” he said.

“The Government should ensure consumers are properly protected from unaffordable misery generated by today’s broken energy market.”

But the Department of Energy and Climate Change insisted that its current measures should ensure the lights stayed on and that customers were “insulated” against gas price rises.

“As Ofgem highlights, we cannot afford to be complacent,” said a spokesman. “Investing in a diverse energy mix will help us to insulate consumers from the high price of wholesale gas.”

Nuclear power subsidy boosted

The Government has come under fire over proposals potentially to double the duration of taxpayer subsidies for crucial new nuclear power stations to 40 years.

The Coalition has already abandoned its 2010 pledge not to subsidise nuclear reactors as it scrambles to attract investment to keep Britain’s lights on, with planned power plants running billions of pounds over budget and years behind schedule. In a bid to persuade France’s EDF to finalise its investment in Hinkley Point in Somerset, the Government is proposing extending a guaranteed minimum price for electricity from 20 years to between 30 and 40 years.

Tom Bawden

Arts & Entertainment
A stranger calls: Martin Freeman in ‘Fargo’
tvReview: New 10-part series brims with characters and stories

News
peopleActress speaks out against historic sexual assault claims, saying things have 'gone quite far now'

Arts & Entertainment
Shaun Evans as Endeavour interviews a prisoner as he tries to get to the bottom of a police cover up
Review: Second series comes to close with startling tale of police corruption and child abuse
Sport
Raheem Sterling and Luis Suarez celebrate during Liverpool's game with Norwich
football Another hurdle is out of the way for Brendan Rodgers' side
VIDEO
Have you tried new the Independent Digital Edition iPad app?
Life & Style
Guests enjoy food and cocktail parings by Chefs Jimmy Bannos, Jimmy Bannos Jr, Daniel Rose and Mindy Segal with mixologists Josh King and Alex Gara at Bounty & Barrel: A Jack Daniel's Single Barrel Dinner Series at Heaven on Seven on April 9, 2014 in Chicago, Illinois.
news Sprinkle Palcohol 'on almost any dish' for 'an extra kick' firm says...
Arts & Entertainment
Charlotte Brontë, the English novelist, poet and the eldest of the three Bronte sisters who lived into adulthood, has been celebrated with a Google Doodle depicting her most famous novel, Jane Eyre.
arts + ents "Reader, they doodled her".

Arts & Entertainment
Schwarzenegger winning Mr. Universe 1969
arts + entsCan you guess the celebrity from these British Pathe News clips?
News
Portrait of Queen Elizabeth-II by David Bailey which has been released to mark her 88th birthday
peoplePortrait released to mark monarch's 88th birthday
Arts & Entertainment
The star of the sitcom ‘Miranda’ is hugely popular with mainstream audiences
TVMiranda Hart lined up for ‘Generation Game’ revival
Life & Style
The writer, Gerda Saunders, with her mother, who also suffered with dementia before her death
healthGerda Saunders on the most formidable effect of her dementia
Arts & Entertainment
Oxegen in Ireland has been axed as promoters decide it is 'no longer viable'
arts + ents Promoters have axed the event as it is 'no longer viable in current form'
News
The troubled star is set to give fans the biggest insight into her life away from the headlines
people Star made the announcement during the final episode of the programme, entitled Lindsay
News
YouTube clocks up more than a billion users a month
mediaEuropean rival Dailymotion certainly thinks so
Arts & Entertainment
The original design with Charles' face clearly visible, which is on display around the capital
arts + ents
Arts & Entertainment
‘Self-Portrait Worshipping Christ’ (c943-57) by St Dunstan
books How British artists perfected the art of the self-portrait
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Geography Teacher

£130 - £140 per day: Randstad Education Ilford: Secondary Geography Teacher Lo...

Do you want to work in Education?

£55 - £70 per day: Randstad Education Cheshire: Are you a dynamic and energeti...

SEN Teaching Assistant

Negotiable: Randstad Education Group: SEN TAs, LSAs and Support Workers needed...

Private Client Senior Manager - Sheffield

£50000 - £60000 per annum: Pro-Recruitment Group: The Sheffield office of this...

Day In a Page

Rubin ‘Hurricane’ Carter: The man who could have been champion of the world - and the Bob Dylan song that immortalised him

The man who could have been champion of the world

Rubin ‘Hurricane’ Carter and the Bob Dylan song that immortalised him
Didn’t she do well?

Didn’t she do well?

Miranda Hart lined up for ‘Generation Game’ revival
The Middle East we must confront in the future will be a Mafiastan ruled by money

The Middle East we must confront in the future will be a Mafiastan ruled by money

In Iraq, mafiosi already run almost the entire oil output of the south of the country
Before they were famous

Before they were famous

Can you guess the celebrity from these British Pathe News clips?
Martin Freeman’s casting in Fargo is genius

Martin Freeman’s casting in Fargo is a stroke of genius

Series is brimming with characters and stories all its own
How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players