Fears of an 'Energy Crunch' if vital investments are not made

Britain risks falling into an energy shortage if the necessary investment into gas storage and new electricity generating capacity is not made urgently, despite the current economic downturn.  So said the Business and Enterprise Committee called for urgent action from the Government to ensure the investment is made, so that the UK avoids and 'energy crunch'.

The Committee raised concerns on a number of energy policy issues, including the inadequate nature of wholesale gas and electicity markets in the UK, which it believes the new Department of Energy and Climate Change, and its corresponding select committee, will need to address.

The Committee is concerned that the current economic situation may prevent energy companies from being able to raise the finance necessary to close the energy gap resulting from decommissioning of old nuclear and coal fired power stations in the coming years.  The report states that: 'Just as the Government has been quick to respond to the crisis in the banking sector, it must now take action to ensure investment in new capacity takes place as planned'. And it went further. 'The situation is now very serious and we believe that a simple trust in the markets ability to deliver without any intervention will see us facing and 'energy crunch' in the medium term'.

On gas storage the report states that: 'If the UK is to avoid falling victim to even higher levels of wholesale gas price volatility in the coming years, it requires a level of growth in gas storage that is an order magnitude greater than that which the market has achieved on its own to date'.  Given the currect economic climate, the Government: 'must now re-consider the likelihood that investment will take place without some form of regulatory intervention'.

The Report highlights the need for more work to ensure domestic and small business consumers get a fair deal.  It supports the proposed introduction of new licence conditions to ensure energy suppliers charge for different payment types (pre-payment meter, standard credit and direct debit terms) are cost reflective and to prohibit indue price discrimination.

The Committee also urges its successor to maintain presuure on Ofgem: 'to look into whether the energy suppliers are using higher than necessary direct debit charges to boost their cash flow'.

Peter Luff, Chairmen of the Committee said: 'The UK now faces the very real risk of an 'energy crunch' in the coming years as vital investments are delayed as a result of the recession.  We have concluded that the Government's faith in the market to deliver new gas storage, generating capacity and other infrastructure is misplaced.  A radical re-think is now required if the lights are to stay on in the medium term.'