OFGEM: prepare for another price hike
OFGEM executive Alistair Buchanan has warned energy customers to expect higher energy bills as the UK becomes more reliant on energy imports.
Mr Buchanan is to say in a speech today that government-mandated falls in the UK's power production capacity will lead to an influx of energy imports - and subsequently, higher bills for customers.
At present, OFGEM predicts that existing plans to take ageing power stations offline over the next several years mean the amount of energy the UK can produce is set to fall - leading to as much as a 10% energy shortfall in capacity by April.
As a part of Energy Secretary Ed Davey's vision of the UK's low-carbon future, vital upgrades to the UK's power grid mean that several key power stations are being taken offline over the next ten years, and effectively replaced with bigger and better ones. These £7.6bn upgrades are being funded largely by consumers, with Mr Davey's Advisory Committee projecting that the average customer's bill will rise by £100 per year in order to compensate for the rising cost of energy due to a shortfall.
Now, Mr Buchanan is warning customers that Ed Davey's £100 will not fully compensate for the UK's temporarily short supply of energy, and has made the claim that the UK will need more gas supplies in order to fill this impending gap - which is hardly good news for consumers, as the UK already imports a substantial majority of its gas supply. It's hard to gauge exactly why the Energy Secretary didn't see this coming.
From 2005-2010, the UK's power regimen changed significantly, with the nation moving from being practically gas self-sufficient to 40% gas import in 2010. In 2011, UK gas imports exceeded production for the first time since 1967, at 60% import.
As the UK's rate of energy consumption has risen quite predictably, this rampant increase in imports can be largely attributed to a fall in production of North Sea oil. Consequently, analysts have predicted that the UK could be importing as much as 80% of its natural gas by 2016. Following OFGEM's voiced concerns over an additional energy shortfall over the next several years, 80% may now turn out to be a rather naïve prediction.
These imports aren't cheap, either. At present, the UK's single-largest import partner is Norway; however, UK homes are also powered by natural gas from Nigeria, Algeria, Egypt, Trinidad and Tobago, Libya, Yemen and, until last year, Iran. That being said, the UK spends the most money on natural gas from Qatar, at £4.25bn - which is around 70% more than customers pay for Norwegian gas. Within the next 2 years, industry experts predict this figure could more than double.
Unfortunately, UK consumers don't have too many alternatives where gas imports are concerned. Optimistic estimates indicate that UK reserves of gas currently hover at around 20 trillion cubic feet - which would power the UK for just 2 years at customers' current rate of consumption.
Meanwhile, evolving methods of extracting shale gas may provide a cheaper alternative to expensive imports in the future, as the most extensive shale gas reserves are found in the US - which would most likely be a substantially cheaper trading partner than Qatar. On the other hand, the UK may not be able to rely too heavily upon US exports, as expensive rates in Asia may prove too tempting for US suppliers to pass up.
That said, it is worth noting that UK customers already pay up to 53% less for their energy than their European neighbours - which is an impressive feat, given that the UK's domestic consumption ranks 12th in the world. Subsequently, the issue surrounding fuel prices in the UK becomes not an issue of price, but rather one of affordability. As the UK's relatively cheap rates continue to slip further out of reach for customers, it is vital that the government pursues viable legislation that can bridge this gap.
In the meantime, one can only hope that Mr Davey's mid-term energy plan will render a more optimistic market for energy customers beyond 2020 - because it appears that OFGEM is indeed correct in its assumption that UK energy prices will increase far more than anticipated within the next several years. Hard as the government may try, this means unavoidably higher energy bills for customers.
There is no way for consumers to escape the consequences of high wholesale energy costs; however, that's not to say they cannot be proactive. Over the last 60 days, our customers have saved an average of £211.00 on their energy bills just by switching energy provider.
