Government pins blame on market forces for GB energy crisis

 Government pins blame on market forces for GB energy crisis

The dispute between Russia and the Ukraine over gas prices and supply has exposed Britain's vulnerability of supply at the precise time our reserves are at their lowest in years.

We have all been drip-fed with the story of how this winter will be the tightest yet between the supply of and the demand for gas, but who would have believed in the distinct possibility that Britain could be left short as a result of a dispute in the Eastern block? After all, we don't import gas directly from Russia. Our supplies come from the gas fields in the North Sea (albeit greatly depleted nowadays), the Norwegian pipeline, LNG shipped from around the world and, increasingly, from Belgium through the Zeebrugge pipeline.

However, Russia does supply huge amounts of gas to Germany, Italy, France and Austria. We are increasingly dependent on Europe to supply gas to us through the Belgian pipeline and when their own supplies are threatened, which could be a real possibility given the current crisis, then Europe is likely to look after itself first before turning on the flow to the UK.

The mere possibility of a threat to supplies is likely to push up the price still further than the record wholesale prices we are already experiencing.

So how did we, who were self-sufficient with our own gas fields and had state-run energy monopolies only 7 years ago, get into such a pickle?

The answer lies in the fact that we no longer have state-run monopolies, having opened our markets to 'free competition', whilst the rest of Europe maintained their monopolistic structures.

Their sheer size enabled them to march into the UK and virtually uncontested, acquire the bulk of our energy suppliers. But despite huge protests from the UK, and in particular, the remaining UK heavyweight Centrica, they have been able to protect their own markets and all sources of supply.

It's no surprise, then, that a recent survey of British businesses has pointed the finger at the Government for the huge rises in energy prices despite Gordon Brown's efforts to pin the blame on market forces and the failure of OPEC to step up oil production in response to escalating global demand.

Electricity4Business' view

Things could have been so different. The idea of bringing competition into the market is a sound one. However, mistakes were made by allowing huge companies to get involved in generation, distribution and retail. By doing so, they were able to secure a stronghold. Foreign conglomerates were allowed to walk away with the energy crown jewels and by participating in this sell off our government effectively compromised our security of supply.

Impact on business electricity

The business sector has been dealt a double whammy. Firstly, there's no running away from the fact that having to buy gas from Europe to replace indigenous supplies will add to the wholesale price of gas, and therefore, electricity. When the supply to Europe is being affected by the dispute then the price will rise further still.

But to rub salt in the wound, many businesses are experiencing rises well above those that may be justified by the rise in wholesale prices and since the market is dominated by the big 6 suppliers businesses have little muscle to negotiate better prices.

About the author:

Bernard Scally - Energy Market Consultant

 Bernard Scally

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