Ofgem forecasts UK energy price hikes

The Office of the Gas and Electricity Markets (Ofgem) on Tuesday warned of a contraction of the country's power-production capacity, mainly driven by UK power station closures and shrinking foreign gas supplies.

Existing plans to take ageing and polluting energy plants off Britain's network over the next few years are already reducing the amount of energy the country produces, while no new plants are being built.

Ofgem predicted power station closures could mean a 10% fall in capacity by April 2013 alone.

Writing in the Daily Telegraph, Ofgem chief executive Alistair Buchanan said, "Within three years we will see reserve margin of generation fall from below 14% to below 5%.

"That is uncomfortably tight," he added.

The energy watchdog explained the UK's fossil fuel energy supplies were heading downhill fast, while Buchanan said that in addition to no new nuclear or clean coal capacity increase, there would be no new "carbon capture" before 2020.

As a result, gas will increase as an energy source for power stations - from 30% now up to a possible 70% in the next seven years, he explained.

"Just when we need more gas, world demand for gas is set to rise while our own supplies are predicted to fall by another 25% by 2020," Ofgem's head said.

He concluded, "There isn't a single person or people to blame. In my view it was a single event - the financial crisis."

The government said it was acting to prevent any energy shortfall, while it has yet to give the final go-ahead for long-term solutions such as new nuclear power stations or pumping domestic shale gas reserves.