LONDON - Powergen, the British energy supply arm of German utility E.ON, became the latest supplier to hike UK prices, raising electricity and gas prices on Tuesday by 18.4 percent and 24.4 percent respectively.
The latest increases follow a string of double-digit rises over the last two years on the back of surging wholesale gas prices. Utilities buy gas in the wholesale market and then sell it on to household and industrial customers.
Here are some of the reasons why gas prices have risen so sharply in Britain.
* For decades Britain was self-sufficient in gas thanks to plentiful supplies in the North Sea. In the 1990s the government promoted a "dash to gas" for power generation to replace coal. Britain has grown steadily more dependent on imports since North Sea production began declining five years ago. Last year output fell unexpectedly sharply.
* Britain imports gas through subsea pipelines with Belgium and Norway and a port at the Isle of Grain near London that receives tankers loaded with liquefied natural gas (LNG). More import projects are being built, but most will only come on stream in 2006 and 2007, leaving the country vulnerable to gas shortages if there is very harsh weather this winter.
* Britain is Europe's most freely traded and most competitive gas market. Other EU markets are controlled by dominant former monopolies. They are often reluctant to sell into the UK market at short notice because they are locked into long-term contracts with their customers. The pipeline from Belgium is often half-empty despite rocketing prices in the UK.
* A new liquefied natural gas terminal at Grain near London has received fewer cargoes than expected since it opened in July because Britain is competing for supplies with the United States.
* The government relied on market forces to ensure the construction of new pipelines to keep Britain supplied. A lack of central planning meant that although the necessary investment is coming, the pipelines will not be built quickly enough.
REUTERS NEWS SERVICE
