FT: UK energy policy – great gas

There are two risks that hover over energy policy. One is that electricity gets so expensive that consumers cannot afford it. The other is that the lights go out. These risks have to be managed. The important thing is to avoid a supply crunch in the gap between shutting down more-polluting generating capacity and building new capacity. This is the trap the UK could fall into, as the electricity and gas market regulator Ofgem warned on Tuesday. There are lessons here for governments, consumers and investors.

The UK’s immediate problem is that 10 per cent of its generation capacity is due to be mothballed in the next few weeks to meet Europe-wide pollution reduction targets. On Ofgem calculations, this means that the UK’s spare generation capacity as a proportion of the total will fall from 14 per cent now to 5 per cent in three years. Essentially, high-polluting fuels like oil and coal are being replaced by gas, which is becoming more expensive. MORE