Action needed to ensure Britain’s energy supplies remain secure

Ofgem recommends far reaching energy market reforms to consumers, industry and government. 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 Prompt action will reduce risk to energy supplies, help lower costs to consumers and help progress towards climate change targets.

Ofgem today published its Project Discovery conclusions after extensive consultation and analysis. They confirm the need to act to deliver both security of supply and environmental objectives at affordable prices beyond the middle of this decade. Prompt action will ensure that consumers do not pay more than is necessary and also allows
time for a wider range of reforms to be considered.

Ofgem has put forward 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.

Ofgem’s Chief Executive, Alistair Buchanan, said: “Our evidence shows 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. We do 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 overwhelming majority of responses to Ofgem’s October consultation show that there is an increasing consensus that leaving the present system of market arrangements and other incentives unchanged is not an option. Ofgem has therefore put forward a range of possible options to unlock the up to £200 billion of investment Britain may need. We are keen to work with Government to find the best way forward.”

Reform is needed because a combination of factors have come together including: the global financial crisis, significant world-wide demand for investment in energy, tough EU emissions targets, the closure of ageing power stations and an increasing dependency on gas imports. The outcome of Copenhagen, in terms of lower carbon prices, reinforces the climate of significant uncertainty just when an unprecedented level of investment is required.

OFGEM – Wednesday 3 February 2010

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