Energy squeeze may push up bills

POWER bills may surge because of a looming shortage of gas and electricity, the head of the energy regulator has warned.

Alistair Buchanan, the chief executive of Ofgem, said “tightness” in electricity supply could come at the same time as a “squeeze” on gas by the middle of this decade.

Consumers are already paying nearrecord gas and electricity bills of £1,310 per year.

The energy chief admitted at a confer- ence in Amsterdam that a squeeze on gas and electricity supply could cause “a very interesting issue on price”.

Energy bills are unpredictable because gas prices can be affected by anything from unrest in the Middle East to maintenance work on platforms in the North Sea.

There is a particular risk that prices will begin to creep up in 2015 because many coal-fired power stations are closing to comply with European rules on pollution.

Gas-fired power stations will have to be built to replace those using coal.

Mr Buchanan is concerned that gas may be increasingly expensive to import as the rest of the world competes for supplies.

“That squeeze and tightness in electricity could come at a time when you have got a squeeze in the LNG [liquefied natural gas] market,” Mr Buchanan said.

He suggested the situation would be made worse by the end of the decade due to delays in building nuclear power plants and wind farms.

Britain’s first new nuclear power station was meant to be built at Hinkley Point by 2017 to help offset the effect of closing coal stations. It has been delayed until 2019 at the earliest, partly because of new safety standards following Japan’s Fukushima nuclear disaster.

“Frankly, if I took a vote in this room, I don’t think we would see any hands expecting Hinkley Point nuclear station this side of 2020,” Mr Buchanan said.

“Rather than moving very quickly to a land of renewables and nuclear, we’re actually going to lean on gas a lot more.”

Tom Pering, an analyst at the energy consultant Inenco, agreed that a problem was looming in 2015 or 2016.

“We’re going to have to find something to replace coal or it is inevitable we will face higher prices,” he said. “Delays to nuclear will definitely prolong the time that we have supply issues, and we’ll have to find something in its place.”

Financial experts warned earlier this month that Britain faces higher gas prices next winter as it becomes more dependent on supplies from abroad.

Gas production from the North Sea fell by 10 per cent last year, leaving the country more reliant on cargoes of liquid gas from the Middle East, according to experts from Merrill Lynch.

There is increasing competition for these shipments from Asia, especially Japan, which is replacing many of its nuclear plants with gas-fired power stations after its tsunami disaster last year.