The future of electricity

When Labour decided to reform the electricity market, they had a number of objectives – cheaper power for consumers, securing investment in renewable energy and supporting the coal and nuclear industries were among them. Well, the New Electricity Trading Arrangements (Neta) have achieved none of these.

When Labour decided to reform the electricity market, they had a number of objectives – cheaper power for consumers, securing investment in renewable energy and supporting the coal and nuclear industries were among them. Well, the New Electricity Trading Arrangements (Neta) have achieved none of these.

The wholesale electricity price has collapsed, but hardly any of this price drop has been passed to consumers, while the pure generators are facing financial ruin. With the financial problems of Texan group TXU, which is one of the biggest retailers and generators, the power market is in virtual disarray.

The total generating capacity in the UK is just over 67,000 megawatts (MW). A large number of the power stations in the country are not running at capacity, so the daily generation is substantially below this, though the National Grid estimates the average peak demand for electricity in cold weather is just over 55,000MW.

British Energy is on the brink of collapse, being saved from the administrators only by aloan from the Government. It is the second largest generator with just under 8,000MW.

TXU is also facing collapse. It owns power stations with a total potential output of just over 6,000MW. TXU's problems are also hitting AES Drax, the owner of the UK's largest power station, which has nearly 4,000MW of capacity. TXU was late with a £20m payment for power due under a long-running supply contract that TXU wants to renegotiate. AES says it cannot afford too big a cut in the price TXU pays for its electricity and the uncertainty has hit UK Coal, which is worried about its exposure to AES. The net effect of this is that some 18,000MW, or nearly a third of all the electricity generation in the UK, is threatened by insolvency.

What's more, earlier this month Powergen, the German-owned group that is number three in the electricity market, mothballed nearly a fifth of its capacity, taking 1,800MW out of the market. Other companies, including TXU, have also mothballed plants, taking some 4,000MW in all out of the market.

Finally, 2800MW of energy is generated by the old Magnox nuclear reactors owned by BNFL. These are horrendously inefficient and lose about £150m a year.

If all the troubled companies shut up shop tomorrow, the UK could end up some 10,000MW short of what it needs during winter peaks. A Californian-style brown-out is not out of the question.

Meanwhile, the troubles at TXU are also casting a pall over the retail market. The troubled Texan titan is the third largest supplier of electricity to homes and offices, with just over 15 per cent of the market, according to Ofgem figures; more than five million customers are supplied by the group.

The retail business is close to being sold, though there are fears that if a deal is not done in the next few days, it will be forced into administration. This is not how deregulation was supposed to look.