“The unprecedented combination of the global financial crisis, tough environmental targets, increasing gas import dependency and the closure of ageing power stations has combined to cast reasonable doubt over whether the current energy arrangements will deliver secure and sustainable energy supplies.” So says the UK energy regulator Ofgem in a press release this morning.

After a year of analysis and consultation, Ofgem has concluded that Britain now has a window of opportunity to put in place far reaching reforms to meet the potential security of supply challenges we may face beyond the middle of this decade. The italics are mine. If I can still understand plain English this means that such fundamental issues as whether we have enough gas and electricity to keep the country running have to be addressed and solved within the next four years!

Well, no need to panic then. That must give us plenty of time to turn around our most vital industry. According to Ofgem, “leaving the present system of market arrangements and other incentives unchanged is not an option.”

It's probably time to buy your own power station.

Ofgem is looking at five levels of possible reforms. This starts with ‘targeted reforms’ which would involve “sharper signals in the gas and electricity wholesale markets which would encourage suppliers to ensure that they have more access to back-up supplies, especially at times of high demand for energy. Also, better price signals would also encourage more demand-side response from energy users.” I’m not exactly sure how better price signals would encourage more demand-side response. Perhaps this means if rising prices are flagged further in advance, old age pensioners can make a considered decision to reduce their heating during the following winter and die quietly. Get those wills written now.

The price comparison website, moneysupermarket.com, has just noted this week that energy bills have doubled since 2003. It also says that the winter energy bill for an average household has increased by 20%, equivalent to £104 over the past 12 months, with a rise from £512 to £616. Given the latest figure that average earnings rose by 1.1% in the three months to November 2009, you don’t have to be a genius to work out that this is causing serious problems.

If targeted reforms do not work, Ofgem ratchets up the stakes to Option Five, which talks about the prospect of having a central UK energy buyer, which would involve co-ordinating all future investment through a single entity. They say that this would involve significant legal issues, but we would end up with a central energy buyer determining the amount and type of new generation needed and enter into long-term energy contracts for power. It could also tender for “new gas infrastructure.”

This appears to be a real concern that the current free market, competitive system may fail to deliver, and that we need to look at a more centralised system. Does privatisation need to be reversed? At least it looks as though we might not just leave it all up to the Russians to decide what supplies we get.

Separately, Ofgem has announced the suspension of its energy network merger policy. They note the major changes in ownership structure in the industry which have developed since 2002, in particular the smaller number of independent groupings in the electricity distribution sector and the sale by National Grid of four of its local gas grids. Until they get a new policy in place they will look at mergers on a “case-by-case” basis.

So, the free market system is possibly unable to deliver and meet our needs for energy security, or supply energy at a reasonable price. Plus, our merger policy which has allowed the privatised UK energy industry to be bought up by overseas companies and consolidated, is now seen as needing change. My advice is to collect all the party political election material you can get your hands on and burn it to stay warm.