Greater regulation looms in UK energy sector
04-Feb-10
Ofgem, the energy regulator, has warned that Britain's energy supplies could be threatened unless radical reforms of the energy market are implemented within the next three years.
Unveiling the findings of a study into UK energy security, termed "project discovery", Ofgem stated: "The unprecedented combination of the global financial crisis, tough environmental targets, increasing gas import dependency and the closure of ageing power stations has combined to cast reasonable doubt over whether the current energy arrangements will deliver secure and sustainable energy supplies". The poor outcome of the UN climate change summit in Copenhagen last December, in particular failure by governments to ensure a sufficeintly-high price for carbon, has reinforced this climate of uncertainty.
In its report, Ofgem presents a range of options, including a floor for the price of carbon allowances, obligations on energy suppliers to ensure spare generation capacity and gas reserves, the creation of a centralised renewables market, and establishmnet of central buying of energy.
The UK government plans to publish its vision for securing energy supply to 2050, and market reform options, alongside next month's budget. It is confident that the current system will be able to deliver secure supplies to 2020, "however, for the longer term, Britain will need a more interventionist energy policy," argues energy and climate change secretary Ed Miliband. "The scale and upfront nature of the low carbon investment needed is likely to require significant reform of our market arrangements..."
The Confederation of British Industry welcomed the report's "stark warning", but said future policy "must take into account the benefits of a competitive market and also the need to give some certainty to investors".
Ofgem's report has attracted considerable media attention, as did publication last autumn of a related report focusing on energy market scenarios, which sought to identify the risks posed to security of supply under different regulatory conditions (Environment Analyst 15-Oct-09).
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