February 19, 2013 / 12:35 PM / 7 years ago

UK energy prices to rise in supply 'roller-coaster' - regulator

LONDON (Reuters) - Britain faces a rise in energy prices as the market is on a bumpy ride heading for a power supply crunch while needing to compete globally for gas resources, the outgoing head of energy regulator Ofgem said.

A gas cooker is seen in Boroughbridge, northern England November 13, 2012. REUTERS/Nigel Roddis

Alistair Buchanan warned in a column published in The Telegraph newspaper on Tuesday that within three years Britain’s spare generation capacity would become “uncomfortably tight” and that avoiding supply shortages would carry a price.

“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,” said Buchanan, who is stepping down as chief executive in June after 10 years in the job.

Britain’s excess power generation capacity will shrink to 4 percent by 2015/16 from 14 percent now as old and polluting power plants close without immediate replacement.

Buchanan said this meant Britain’s electricity network operator National Grid faced tough challenge over the next few years to ensure the lights stay on because of a lack of spare production capacity over a prolonged period.

At the same time, energy technologies such as wind farms, nuclear plants and carbon capture and storage (CCS) facilities have faced financial obstacles, making gas the most likely fuel to produce electricity in the short term, he said.

“The big worry about gas for all consumers is what price will we have to pay to get it? Because just when we need more gas, world demand for gas is set to rise while our own supplies are predicted to fall by another 25 percent by 2020,” he said.

Unlike in the U.S., shale gas is not going to contribute significantly in Britain or elsewhere in Europe, he added, leaving Britain prone to competing for liquefied natural gas (LNG) in the global market.

Britain’s energy ministry said in response to Buchanan’s warning that the government’s reform of the electricity market was aimed at plugging the supply gap.

“Our reforms will incentivise a record 110 billion pounds ($170.27 billion) of private sector investment in new clean power generation - in renewables, new gas, nuclear and CCS,” a spokesman for the ministry said.

Britain plans to create a capacity market whereby backup plants, such as gas stations, are spurred to power up at times when intermittent renewable energy plants are not producing.

Reporting by Karolin Schaps; editing by James Jukwey

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