The UK Government has decided against subsidising for new gas storage facilities saying it would be too expensive for bill payers.
Energy Minister Michael Fallon made the announcement yesterday and revealed the decision would save up to £750 million over 10 years.
An independent analysis commissioned by DECC showed the subsidy costs would far outweigh any benefits to security of supply – meaning the Government and consumers would be subsidising investments that large energy firms could pay for themselves.
It suggested gas storage is only providing 7% of total supply in the UK and the market is “continuing to function well” in attracting gas from a range of sources for current and future demand. The UK also has the capacity to deliver twice the amount of gas required in a “normal” winter and has coped well in extreme conditions, according to the analysis.
The news comes despite reports earlier this year claiming a cold winter could see UK reserves run out, with Britain facing a potential gas supply crisis.
Energy Minister Michael Fallon said: “Security of supply can be delivered more cheaply by the market and action is already being taken to ensure that it provides sufficient energy in the short and medium term.
“The Government is committed to doing all it can to help consumers reduce energy bills and there is no benefit in further expensive subsidies when the market is working. Gas supplies worldwide are increasing and it is increasingly easy to import additional supplies to the UK if required. It is up to industry to get on and invest in building gas storage and they are doing so.”
Two gas storage facilities in Yorkshire and Cheshire have recently been built and two more – at Stublach and Hill Top Farm in Cheshire – are currently under construction. Once they are complete, the capacity of UK storage facilities to meet peak demand will have doubled since 2000.
A further 12 gas storage schemes have got planning permission and are waiting for the right market conditions to go ahead.