Thursday 9th October 2008

Experts have warned of possible sharp energy price rises as waning reserves lead to growing supply worries.

The National Grid has warned that Britain could face more price rises amid concerns that a supply squeeze is on the way.

The power grid operator said in an annual report for large energy users planning for winter, that due to the loss of a number of key power stations for maintenance, the spare generating capacity limit is tight, particularly next month.

The National Grid has also said that 10 per cent more gas will be imported into the UK than the same time last year from destinations such as Norway and elsewhere in mainland Europe due to the North Sea reserves being so low.

National Grid reassured that there would be enough power to meet overall demand:

"Provided the electricity market continues to make plant available in response to the appropriate price signals, demand should be able to be met in full, even in a harsh winter,"

It noted however that wholesale electricity prices might have to rise even higher from the current record levels to encourage the operators of spare plants to bring on emergency capacity during peak demand periods.

Some sceptic power traders have said that the National Grid's report is playing down the seriousness of the supply crunch situation facing the UK. The head of energy trading in energy consultancy Inenco, Stuart Lea, said:

"There really is a potential big problem here. If National Grid is saying everything is OK, then why do we have extremely tight margins for November and why are prices at record highs? Their figures don't back up their rosy outlook."

Major Inquiry

This comes as energy regulator Ofgem is to publish the findings of a major inquiry into gas and electricity prices, after suspicions of collusion between energy suppliers were raised when all of the leading suppliers released major price rises at almost exactly the same time.

Ofgem have been rummaging through internal e-mails and minutes of meetings of all the big electricity and gas suppliers since February. There is particular concern over the tariffs on pre-payment meters.

Ofgem has enough powers to order changes in the way energy companies conduct their business, and could call for a further, more intensive investigation by the competition commission.

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