Fuel bills will keep soaring warns energy watchdog: Green targets could trigger 1970s-style power blackouts
Fuel bills will soar as green targets leave Britain reliant on expensive imported gas, the energy regulator warned yesterday.
Alistair Buchanan, chief executive of Ofgem, also raised the spectre of 1970s-style blackouts because 10 per cent of coal and oil-fired power production is being shut down next month.
The chance of large power cuts – those that hit more than a million homes – will be 300 times more likely by 2015, he warned.
He claimed ministers were banking on low-carbon energy from nuclear power and wind farms which do not yet provide enough power to keep the lights on.
Mr Buchanan said: ‘We have to face the likelihood that avoiding power shortages will also carry a price.
‘If you can imagine a ride on a rollercoaster at a fairground, then this winter we are at the top of the circuit and we head downhill – fast.’
An average dual fuel bill is now more than £1,300 a year, a 160 per cent rise on 2004, leaving more families in fuel poverty and choosing between heating and eating.
The Ofgem chief, who will retire this year, told an audience in central London that attempts by the Government to reform the electricity market had come too late to avert price hikes.
There had been a ‘car crash’ when the Labour government’s huge investment in renewables and decision to phase out coal met the financial crash, he said.
From 2015 he predicted a ‘double squeeze’ on both supplies and prices as suppliers scramble to invest in new resources.
Mr Buchanan said the financial crisis is largely to blame for the squeeze on energy supplies, making companies less keen to invest in costly new nuclear plants and renewable technology.
Coal and oil supply 30 per cent of Britain’s power but an EU directive means older power plants must install expensive technology to reduce emissions or shut down by 2015.
It has now emerged that one in ten will close early, at the end of March, and more could follow.
Mr Buchanan also blamed UK green taxes – a new carbon tax on industry comes in from April – as well as global trends in coal and gas prices.
The Ofgem chief said the amount of electricity coming from gas – currently 41 per cent – will have to rise to over 70 per cent within seven years.
But planned new gas power stations have not even been built and many are closing due to rising costs.
Spare power in the system to cope with sudden spikes in demand such as a freezing winter has dropped from 14 per cent to below 5 per cent. ‘That is uncomfortably tight’, he said.
Firms will ‘have to go shopping around the world’ for costly imported gas which is also in demand in Asia and across Europe, where all nations must cut emissions.
‘The big worry about gas for all consumers is what price will we have to pay to get it?’, he said.
‘Because just when we need more gas, world demand for gas is set to rise while our own supplies are predicted to fall.’
Ann Robinson of uSwitch said customers could not take a bigger squeeze on bills.
She added: ‘The Government needs to pause and consider the impact large scale investment is having on consumers and the affordability of energy. We need some renewables but maybe not as many as people say.
‘We are investing in onshore and offshore wind, 40 new gas power stations in case the wind doesn’t blow and we are going to have to pay to compensate them if they don’t run all the time. This needs thinking through again.’
A new generation of eight nuclear power stations is planned but they will not produce energy until the 2020s.
Plans trumpeted by energy secretary Ed Davey to ‘capture’ emissions from coal power stations to stop them being released into the atmosphere are also at a very early stage.
Fracking for shale gas has ‘exciting’ potential but is also at least five years off, he said.
The risk of power cuts for more than a million homes, as seen during the three-day week crisis in the 1970s, is currently put at 1 in 3,300.
But it could drop to one in 12 by 2015, Ofgem said.
Jeremy Nicholson, of the manufacturers association EEF, confirmed there was a real risk of blackouts in two years.
He added: ‘Even before that our members will experience very high peak prices for electricity, possibly gas prices too, which will could see companies have to temporarily or God forbid permanently stop production when they are trying to be engines of economic growth.’
A Department of Energy and Climate Change spokesman said: ‘We cannot afford to be complacent and may face a looming energy gap.
‘The reforms we are introducing to the electricity market are aimed at plugging this gap in order to keep the lights on … guard against blackouts and ensure there is sufficient supply when margins get right.’
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