Britain’s energy regulator yesterday warned of power blackouts and spiralling consumer prices and raised the prospect of partial renationalisation of the industry.
In a damning report, Ofgem says Britain’s power industry is in a dire state and in desperate need of investment. The regulator raised the prospect of direct government intervention that would wind back the clock on 20 years of deregulation.
Alistair Buchanan, Ofgem’s chief executive, said: “We do not advocate change lightly, but all the facts point to the need for reforms now ... Leaving the present system unchanged is not an option.” In remarks akin to proposals by Ed Miliband, the Energy Secretary, in an interview with The Times on Monday, Mr Buchanan said that there was “reasonable doubt” over the security of Britain’s energy supplies before 2015 and set out proposals to unlock an estimated £200 billion of investment needed to solve a looming energy crunch. “Acting earlier will also help keep costs as low as possible for consumers and business,” he said.
Mr Buchanan claimed that the crisis had been compounded by an “unholy trinity” of factors — including the impact of the recession on energy industry investment, Britain’s growing reliance on imported gas as North Sea supplies are depleted and the closure of nine ageing coal-fired and oil-fired power stations by 2015 in order to meet new EU pollution laws, a move that will at a stroke scrap almost a third of UK generating capacity.
However, Ofgem’s Project Discovery report, which has thrust energy policy centre stage weeks before an expected general election, immediately provoked a storm of criticism.
Lord Lawson of Blaby, the Conservative former Energy Secretary, an architect of energy market deregulation in the 1980s, rejected Ofgem’s analysis and accused it of being subject to political interference. He said: “It’s not the free market that has failed but political opposition to nuclear, coal and other forms of carbon power ... Ofgem just feels it has to trim its sails to the prevailing political wind.”
Dieter Helm, Professor of Energy Policy at Oxford University, said the findings exposed a failure by Ofgem to tackle deep problems in the energy market that had been clear for many years. “Ofgem has very limited credibility,” he said. “This is a quite remarkable entry into policy by a regulator.”
Ofgem’s proposals range from placing new requirements on Britain’s Big Six energy companies to generate more electricity from wind or nuclear power to more drastic steps such as creating a centralised national “energy buyer” that would coordinate investment through a single company, probably with state support. Another proposal is to set a floor on the price that power plant operators must pay for their CO2 emissions — to funnel investment into cleaner alternative fuels.
All these proposals would involve greater central control or government intervention and having a centralised buyer would involve an element of industry renationalisation.
Greg Clark, the Shadow Energy Secretary, said it was a “sign of desperation” that Ofgem, whose chief role is to execute government policy, was having to urge the Government to adopt a policy for energy security. He said: “This is a devastating verdict on Labour’s 13 years of neglect of Britain’s energy security.”
Mr Miliband rejected the concerns and agreed with Ofgem’s conclusions. He said: “For the longer term, Britain will need a more interventionist energy policy. The scale and upfront nature of the low-carbon investment needed is likely to require significant reform of our market arrangements.”
Alistair Buchanan, Ofgem’s chief executive, said: “We do not advocate change lightly, but all the facts point to the need for reforms now ... Leaving the present system unchanged is not an option.” In remarks akin to proposals by Ed Miliband, the Energy Secretary, in an interview with The Times on Monday, Mr Buchanan said that there was “reasonable doubt” over the security of Britain’s energy supplies before 2015 and set out proposals to unlock an estimated £200 billion of investment needed to solve a looming energy crunch. “Acting earlier will also help keep costs as low as possible for consumers and business,” he said.
Mr Buchanan claimed that the crisis had been compounded by an “unholy trinity” of factors — including the impact of the recession on energy industry investment, Britain’s growing reliance on imported gas as North Sea supplies are depleted and the closure of nine ageing coal-fired and oil-fired power stations by 2015 in order to meet new EU pollution laws, a move that will at a stroke scrap almost a third of UK generating capacity.
However, Ofgem’s Project Discovery report, which has thrust energy policy centre stage weeks before an expected general election, immediately provoked a storm of criticism.
Lord Lawson of Blaby, the Conservative former Energy Secretary, an architect of energy market deregulation in the 1980s, rejected Ofgem’s analysis and accused it of being subject to political interference. He said: “It’s not the free market that has failed but political opposition to nuclear, coal and other forms of carbon power ... Ofgem just feels it has to trim its sails to the prevailing political wind.”
Dieter Helm, Professor of Energy Policy at Oxford University, said the findings exposed a failure by Ofgem to tackle deep problems in the energy market that had been clear for many years. “Ofgem has very limited credibility,” he said. “This is a quite remarkable entry into policy by a regulator.”
Ofgem’s proposals range from placing new requirements on Britain’s Big Six energy companies to generate more electricity from wind or nuclear power to more drastic steps such as creating a centralised national “energy buyer” that would coordinate investment through a single company, probably with state support. Another proposal is to set a floor on the price that power plant operators must pay for their CO2 emissions — to funnel investment into cleaner alternative fuels.
All these proposals would involve greater central control or government intervention and having a centralised buyer would involve an element of industry renationalisation.
Greg Clark, the Shadow Energy Secretary, said it was a “sign of desperation” that Ofgem, whose chief role is to execute government policy, was having to urge the Government to adopt a policy for energy security. He said: “This is a devastating verdict on Labour’s 13 years of neglect of Britain’s energy security.”
Mr Miliband rejected the concerns and agreed with Ofgem’s conclusions. He said: “For the longer term, Britain will need a more interventionist energy policy. The scale and upfront nature of the low-carbon investment needed is likely to require significant reform of our market arrangements.”
Source: The Times
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