UK energy expert Helm says gas security of supply is failing

London (Platts)--1Nov2005

Energy expert Dieter Helm believes that the UK does have a problem 
with the security of its gas supplies, he told a meeting of think-tank the 
Social Market Foundation Tuesday. On Monday energy regulator Ofgem and energy
minister Malcolm Wicks told the House of Commons that this winter was "tight" 
on gas supplies, but that they did not want to "over-dramatize" the problem.
     Helm said that the security of supply crisis was in the price of energy. 
The wholesale price of an annual gas supply is now over 50 pence/therm, Platts
assessments show, up from around 20p/th just a couple of years ago. That high 
price was either down to "massive market abuse" or to a security of supply 
problem, Helm said. He thought it was the latter. 
     Helm said the lights would "probably not" go out this winter. But he 
pointed out that you can always balance supply and demand if you put the 
prices high enough, so that users stop burning gas. "The damage is done before
the lights go out," said Helm, arguing British industry was paying the price.
Heavy industrial users are being priced out of the market.
     Energy policy had to face up to a new reality of short supplies and long-
term investments. It was time to make a move away from the old policy of 
"sweating assets" to bring the lowest costs, he said. There were no cheap 
answers for the future. Securing future energy supplies would be a "very, very
expensive exercise."
     Helm's answer for the future is to set up an independent energy agency to
take energy and climate change action forward in the future. Government policy
should decide two things: how much security of supply is desired and how much 
carbon the government wants to cut. The government should then step back, 
definitely not get involved in picking technological winners, and leave the 
energy agency and markets to work. Helm said this was analogous to the way the
Treasury sets inflation targets, then gets the independent Bank of England 
Monetary Policy Committee to decide the interest rates necessary to achieve 
those targets. The energy agency could offer long-term security for investors.
     Such an energy agency would be a central repository of expertise, 
bringing together a wide range of functions now carried out across government 
departments, regulators and other bodies. Helm said the idea of a single 
agency was unpopular because it meant shutting down a lot of the existing 
bodies.
     Helm said long-term instruments and stability were needed for investment.
Once government had decided what carbon and security targets it wanted to 
meet, the agency could arrange with industry how to meet those targets. For 
example, a nuclear power plant builder could agree a deal to provide carbon 
savings and would get paid if it built a plant and managed to deliver them. 
But Helm stressed he was "agnostic" on nuclear and did not favor any 
particular technology.
     Helm also said that the problem of fuel poverty was not one that should
be tackled through energy policy. He said it was vital that politicians "don't
muck about with the energy price to solve a social security problem." If there
was  an energy price shock--as there has been--the answer was to boost
incomes, not to try to control energy prices, destroying market signals.
---Alex_Froley@Platts.com

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