Consumers should prepare for rising energy bills with Britain’s supplies on a “roller-coaster”, the head of the energy watchdog warned on Tuesday.
Ofgem chief executive Alistair Buchanan said that a lack of spare power station capacity, shrinking foreign gas supplies and increasing energy demand would lead to more energy imports and customers paying more.
Writing in the Daily Telegraph ahead of an industry lecture today, Buchanan said: “We have to face the likelihood that avoiding power shortages will also carry a price.”
He added: “If you can imagine a ride on a roller-coaster at a fairground, then this winter we are at the top of the circuit and we head downhill — fast.
“Within three years we will see reserve margin of generation fall from below 14% to below 5% — that is uncomfortably tight.”
Buchanan warned the closure of old and polluting coal and oil-fired power stations in order to meet environmental targets would lead to 10% reduction of the UK’s energy generation capacity by April alone.
He warned that Britain would need more gas supplies to plug the shortfall.
“Just when we need more gas, world demand for gas is set to tighten,” said Buchanan, who is set to step down later this year.
Compounding factors include the cancellation of expected gas supplies from Russia’s large Shtokman field and demand from China rising by 20% a year.
Buchanan said that, in the short term, Britain would not be able to rely on renewable energy sources such as wind to to cover the shortfall before new sources of nuclear energy come on line.
“Wind has also been hit by the financial crisis and it will take time to reach a critical mass,” he wrote.
“Nuclear will not be with us until well after 2020 and carbon capture and storage technology is still in its infancy. So that leaves gas.
“Ofgem estimates that, by 2020, 60 percent to 70 percent of our generation may have to come from gas to fill the gap.”
Watchdog chief warns of rising energy bills
