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Ofgem in new power blackout warning UK shale gas reserves 'greater than thought'
(about 7 hours later)
The energy regulator is expected to warn later that the risks of power blackouts has increased. UK shale gas reserves may be far greater than previously thought, a report for the government says.
In an updated assessment of the UK's electricity market, Ofgem will say that excess capacity has fallen. The British Geological Survey was asked to estimate how much gas is trapped in rocks beneath Lancashire and Yorkshire.
It will heighten consumer groups' concerns that people could face higher energy bills in the coming years. It said there could be 1,300 trillion cubic feet at one site alone, but it is unclear how much could be extracted.
Ofgem has twice warned in recent months that the amount of spare power is shrinking, partly due to some gas generators being taken out of service. Ministers are set to announce financial benefits for communities where fracking - the controversial extraction technique - takes place.
Centrica has already withdrawn two of its gas plants from operation. 'Exploit gas'
Plants mothballed Critics argue that the process of fracking can cause earth tremors and pollute water supplies, and that shale gas wells could blight the countryside and affect house prices.
In April, SSE confirmed that it too would mothball gas plants and put off investments in new ones. They want investment in green energy.
Many of the UK's gas plants are said to be operating at a loss, hit by falling power prices compared with the cost of gas. The report for the government comes as energy regulator Ofgem is expected to warn that the risks of power blackouts has increased because excess capacity in the power industry has fallen in the UK.
Another factor that has crimped supply in recent months is European Union environmental legislation. In his Spending Review on Wednesday, Chancellor George Osborne said the government would "make the tax and planning changes which will put Britain at the forefront of exploiting shale gas".
That saw around 10% of the UK's power capacity shut down in April. BBC environment analyst Roger Harrabin says fracking is revolutionising energy markets in the US and the UK hopes to follow suit.
Last October, Ofgem warned that the margin between the available electricity supply and demand could fall to as low as 4% by the middle of the decade. The government will be hoping for many years of gas supply, and tax revenues, but the shale geology of the UK is complex and the costs of drilling are likely to be much higher than in North America, says our correspondent.
Then in February, Alistair Buchanan, the chief executive of Ofgem, told the BBC that the situation had worsened, saying that "within three years it is going to get very tight". The BBC understands that communities that host fracking sites, which involve pumping water, chemicals and sand at high pressure into rock to release shale gas, will receive 1% of any revenues generated by the well over its lifetime.
The government's plan to ensure the lights stay on includes "capacity payments". The package is expected to be set out by the Department of Energy and Climate Change later.
Capacity payments are designed to incentivise the building of new plants by guaranteeing investors take an agreed amount of electricity for an agreed price. BBC industry correspondent John Moylan says gas flow rates from "fracked" wells tend to deteriorate significantly over their lifetime, so it is likely that much of the cash communities would receive would be in the early years of the well's operation.
But the government has already come under fire over capacity payments from one of the big six suppliers. The communities would decide how any cash was spent.
"Government proposals for a capacity mechanism must pass the simple test of whether it keeps the lights on at the lowest cost to consumers," said Paul Masarra, the chief executive of Npower. 'Rising prices fear'
He added: "For me, that means a mechanism that treats all power plants in the same way, but that's not what the current proposals suggest." Meanwhile, in an updated assessment of the UK's electricity market, Ofgem is set to issue another warning about possible power blackouts in 2015.
'Higher prices' The watchdog has twice warned in recent months that the amount of spare power is shrinking, partly due to some gas generators being taken out of service.
Npower wants the mechanism to extend to recently built power plants as well as proposed new installations. Centrica has already withdrawn two of its gas plants from operation. In April, SSE confirmed that it too would mothball gas plants and put off investments in new ones.
But the plans worry consumer groups who fear they will result in higher household energy bills.
Adam Scorer, of the lobby group Consumer Futures, said: "Projections of ever-tighter capacity margins understandably raise fears of higher electricity prices.Adam Scorer, of the lobby group Consumer Futures, said: "Projections of ever-tighter capacity margins understandably raise fears of higher electricity prices.
"Government and regulator need to agree on the most realistic capacity scenarios, the least-cost ways of reducing demand and, where necessary, of incentivising new generation capacity.""Government and regulator need to agree on the most realistic capacity scenarios, the least-cost ways of reducing demand and, where necessary, of incentivising new generation capacity."
More details of how these will work are expected later as part of a wider series of announcements by Energy Secretary Ed Davey, which will include publication of the British Geological Survey's report on shale resource in the north of England and the community benefits being offered for those who allow fracking locally.