The regulator has asked the new Competition and Markets Authority to probe competition in the retail energy market, following months of heightening political pressure to bring down customers’ bills. The CMA investigation is expected to start in July and take 18 to 24 months.
British Gas-owner Centrica said uncertainty caused by the probe meant it would delay investment in gas-fired power stations in the UK, and that pressure on supply would raise the possibility of the lights going out.
“There is an increasing risk. A lot can be done in terms of demand management, but actually building a new gas power station does take four years,” Sam Laidlaw, chief executive of Centrica, told the BBC’s Today. “So that’s the kind of time pressure we are up against, by adding another two years that makes it six years.”
Analysts also warned that the probe would hinder vital investment into the energy sector, at a time when security of supply is at risk.
“The tightening of reserve margins that is now unavoidable for the next two winters will extend and get deeper, as more power stations will be closing,” Peter Atherton, analyst at Liberum, told City A.M., referring to the safety buffer of spare power capacity between supply and demand. “There is no room for unexpected events and we could even get to a point where there is no reserve margin.”
And Morgan Stanley said the lengthy investigation will stop the big six from investing in generation.
As the energy debate rumbles on, Labour leader Ed Miliband will today say that if Labour is elected next year, he plans to extend his proposed energy price freeze from just households to small firms and self-employed people.
Business groups raised concerns about the impact of the probe, with the CBI saying that it is “crucial” that the referral is concluded quickly “for those looking to invest huge sums of money in the UK’s energy infrastructure”.
But energy secretary Ed Davey said it would “create long-term certainty for investment”.
Ofgem’s review criticised the big six suppliers’ rising retail profits, saying there was no evidence that they were becoming more efficient in reducing their own costs. It also questioned whether their five per cent profit margins were fair. The regulator also called for an investigation into vertically integrated energy companies and criticised the firms for charging more to customers who had not switched suppliers.
The announcement coincided with new government figures that showed the UK has become a net importer of petroleum products for the first time since 1984, hit by refinery closures and a decline in North Sea output.
Despite the probe, Centrica’s share price closed 0.65 per cent higher.
SSE put further pressure on its peers on Wednesday when it said it would freeze prices until 2016, which it will offset by slashing renewables investment.