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UK energy market in need of guidance

Oilfield Technology,

Ofgem, the UK national energy regulator has stated that it thinks there should be a single, state-controlled energy buyer. Its other ideas are less radical; it also proposed a lower limit on carbon price, payments for providing extra capacity, and forced obligations to build mow power stations. However, these statements are a tacit admission that the energy industry has been left to its own devices for too long, and that the UK could face future blackouts if more is not done to safeguard energy supplies for the future.

Five of Britain’s 14 operating coal power plants have to close by 2015 and seven of the existing nuclear power plants will be closed by 2020. This could potentially leave a massive energy shortfall if more is not done to plug the gap, and it is estimated that it will take some £200 billion of investment in new power generation to avert an energy crisis. However, market conditions are not right at the moment to justify making this kind of investment.

Ofgem fears that if companies are not compelled to speed up the process of bringing extra capacity online, then its pessimistic hypothesis could become a reality.

However, not everyone has welcomed such proposals, Centrica Energy’s Managing Director, Mark Hanafin, has said he believes that if the government starts getting more involved in the energy market, it will only scare off investment and drive away big players from the UK. The European Union is also unlikely to look favourably upon the UK turning its back on a free-market ideology.

But while Centrica may disagree with Ofgem’s proposals, the company does agree that not enough is being done to guarantee Britain’s energy supplies. Sam Laidlaw, Centrica Energy’s CEO, points out that Britain is critically short of gas, unlike the US who are only now starting to unlock the potential of shale gas. With this in mind he believes that the UK should be doing more to diversify its energy supplies.

More investment is needed in nuclear and wind power to cut greenhouse emissions whilst securing energy supplies. He believes this can be achieved through incentives like the Renewables Obligation which obliges energy suppliers to source some of their energy from renewable sources like offshore wind; for the 2011-2012 period that target is currently set at 10.4%. Nuclear power does not have the same mechanisms in place and this could be a significant barrier to Britain’s nuclear future.

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