When the free market fails energy

The highly deregulated state of the UK market may have helped reduce energy prices, but a raft of difficult new challenges are facing the sector which the free market isn’t solving – and both sides of politics seem to agree a more interventionist approach is needed.

With the country’s own domestic supplies falling, there are some well-known problems facing the electricity sector.  First is concern over energy security and storage, as the country imports a large proportion of its power needs – especially given the fears around securing supplies from Russia. Meanwhile the need to shift to lower-emissions power sources is also pressing, under both UK and EU commitments. And some older coal-fired and nuclear power plants are nearing the end of their lives.
Ofgem estimates that £200bn needs to be spent by 2020 to deal with these issues. Left to its own devices, the industry is not spending enough, and what it is doing is building new gas-fired power generators, which are reasonably quick to deploy and lower in emissions than coal – but don’t do enough to address either security or climate issues.

Fiona Harvey explains:

The market isn’t always right for energy security (FT Energy Source)
Ofgem urges energy market shake-up (FT)
Ofgem: £200bn of investment needed (FT Energy Source)

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