UK • LIBERALISATION Britain’s model of a competitive liberalised energy market appears to be in trouble. The country’s biggest power producer, British Energy, is effectively insolvent, and is surviving only on state loans. Powergen has shut down a quarter of its generating capacity (plants at Isle of Grain and Killingolme), while TXU Europe has been cut off from financial support by its American parent and is up for sale. This could have serious repecussions for the giant coal fired plant AES Drax, which sells most of its output to TXU under a long term contract. All these companies blame their problems on too-low wholesale prices created by the NETA trading arrangements, giving rise to calls for their abandonment or serious overhaul.
Analysts at EIC (Energy Information Centre) claim that in fact NETA has been working correctly. The various crises have caused hikes in prices (the Powergen decision alone caused a 2 per cent rise), but industrial and commercial users have in the last year seen prices fall to levels equivalent to their most competitive European counterparts. Generators are torn between two options – cutting output to push prices up or driving output hard to gain maximum revenue. EIC believes that resolution of the situation may depend on decisions made by Innogy. If it follows Powergen’s lead, a more sustainable price rise may result.
Recent market activity, say EIC, shows the proper working of the competitive market, and should send a strong signal to the government not to alter NETA in favour of generators.
• Meanwhile the Institute of Chemical Engineers has warned that low wholesale electricity prices are stifling investment in new power technologies, with serious implications for the government’s CO2 targets. This is one of the main conclusions in a new ICE report, Energy at the Crossroads.
The report concludes that the findings of the government’s recent Energy Review are incompatible with the objective of a balanced and secure energy policy in the UK and cast doubt on the report’s forward projections for European gas prices. The proposed high dependence on natural gas risks the UK’s energy security, and early intervention by the government will be required to approach the emissions targets it has set.