Britain is on the brink of a major energy crisis. It's a crisis against which the credit crunch and recession could pale in comparison. Our security of supply is becoming less secure by the day, but we have consistently failed to take decisive action.
Keeping the lights on is a phrase that has been banded about with greater regularity in recent years, highlighted by high profile power outages around the globe. The most recent in Brazil just before Christmas left 870 million people in the dark for up top five hours. But the fact is unless concerted and co-ordinated action is taken too the big blackout could be coming to a town near you.
The gravity of the situation has at last been acknowledged by the UK regulator, Ofgem. It has published the findings of its Project Discovery, obtained after extensive consultation and analysis with the great and the good. The findings confirm the need to act to deliver both security of supply and environmental objectives at affordable prices beyond the middle of this decade.
Ofgem is effectively admitting that it, and the government, has lost a decade of energy planning. The country needs to find £200 billion - at least - to invest in its energy infrastructure by 2020 to meet the UK’s energy needs. OFGEM has conceded that there is a real danger of the lights going out by 2015 if action is not taken.
The report says that Britain has a window of opportunity to put in place far reaching reforms to meet the potential security of supply challenges we may face beyond the middle of this decade. As with most regulators, that are risk averse – some would almost say action averse, Ofgem does not advocate change lightly, but all the facts point to the need for reforms now to provide resilient supply security. Acting earlier will also help keep costs as low as possible for consumers and business.
The report calls for a wide range of options for further consultation, including improved market signals, obligations on suppliers and capacity tenders to give greater confidence to help meet our carbon targets. Other options also include more structural reform ranging from a centralised renewables market through to a central buyer of energy
The proposals are wide ranging and radical, if rather late to say the least. For a number of years industry analysts have been calling for investment in nuclear and renewable generation, capacity payments to secure power station availability, and a reasonable floor on the carbon price to create a level playing field for low carbon generation.
he recommendations have broadly hit the target, but there is some concern about the regulator’s most radical option - a central buyer for energy. The report casts doubt on the industry’s ability to deliver sufficient power by the middle of the decade and recommends far-reaching reforms of the energy market to ensure plentiful low carbon energy supplies in the future.
While the report is now adopting these ideas, the option for a central buyer is a step too far and according to one commentator it is ‘relying on Soviet-style central planning would be a damning indictment of policy failure’.
It is a point conceded by the regulator, who says that a centralised renewables market might sound Stalinesque, but it may be what is required to bring a structure and concerted strategy to the major campaign of the coming years — creating energy and protecting its supply.
The fact is that Ofgem created the current market conditions which are clearly not working. The regulator has overseen a period of low investment in the UK’s infrastructure known as 'sweating the assets' - and now it comes as a surprise to them that our power stations are on their last legs.
As it is, the 2015 energy gap means that we will fill our short-term needs by a worrying dependence on foreign gas to generate our power - as much as 75 per cent in years to come - as nuclear, wind and clean coal won't be ready in time.
It is now inevitable that consumers will have to foot the bill. Consumers, who are already paying near-record prices for their gas and electricity, will have to stump up for further increases in order to pay for the belated response to what has been a glaring shortfall in future supplies.
The proposals stipulated in Project Discovery will hopefully provide the direction we need if we are to protect our energy supply in the medium to long term. But we have to be holistic in our approach to the energy crisis. In order to properly secure our energy supply, we have to resolve existing and well-acknowledged issues around infrastructure and planning constraints. The energy market is not isolated but is interlinked with, and dependent upon, many other markets.
Unless coordinated action is taken soon, the country and consumer could pay a huge financial price. Energy bills are skyrocketing and only a concerted strategy will turn this around.
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