Ofgem warns of power blackout threat

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19 February 2013, Gas, Electricity

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How worried should we be about this, and if this looming capacity crunch is to be avoided how much will it cost us all?

In the next few weeks - according to Mr Buchanan - about 10% of the UK's current capacity shuts down as older coal and oil-fired plants reach the end of their lives (the EU Large Combustion Plant Directive mandates the closure of these plants after they reach 20,000 hours of operation).

Datamonitor Energy forecasts that by 2020 UK residential power demand will be 4% higher than it is today, with other increases expected in power used in the commercial sector and in transport (more hybrid and electric cars) outweighing lower demand from industry. In that time frame there will be nothing like enough improvement in energy efficiency via initiatives like the Green Deal, and the government's hopes for new nuclear capacity are looking more and more doomed as time goes by.

In practice, the lights will stay on in the UK. Tighter capacity doesn't mean we will all be using candles. It just means that if several extreme events happen at once the lights could go out, but even if they did industrial customers would be cut off first to spare households. The UK would need prolonged severe winter conditions (i.e. like in 1963) alongside an interruption to supplies from somewhere like Norway or the unavailability of liquefied natural gas supplies for there to be power cut offs to households.

However, what is unavoidable is that for the foreseeable future the UK will need to use more gas, and this means higher prices. Alastair Buchanan is right to point out that other parts of the world are competing for tighter gas supplies, and prices in Asia are far higher (60%) than here in Europe. Also, the almost complete lack of action on developing the UK's own supply of shale gas means that UK consumers will see no help from that quarter in the next five years at least (unlike in the US, where natural gas prices are one third of their level five years ago).

Still, it could be worse: households in 12 EU countries pay far more for their electricity than here in the UK. Today, demonstrators blocked the street outside the Department of Energy & Climate Change protesting about fuel poverty. As long as the government remains committed to greening our power supply and faces up to subsidies for new nuclear capacity it is hard to see that prices will come down. This picture would be slightly more palatable if UK households thought their suppliers were doing a good job. But they don't and that's another story.

www.datamonitorenergy.com / asken@datamonitor.com / @DatamonitorEN

Source: MarketLine

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