With Powergen powering down, and the possibility of other generators doing the same, rising electricity prices may well offer the opportunity that renewable energy has been waiting for.
The blame is being placed by the struggling power companies firmly at the door of the New Electricity Trading Arrangements (NETA). These agreements have seen wholesale electricity prices drop by 40% over the last two years, and this year UK commercial and industrial electricity users have enjoyed a fall in prices to levels equivalent to their most competitive European neighbours. The confusion surrounding what the crisis companies would do caused wholesale prices to rise dramatically. The downfall of TXU, recently purchased by Powergen, was attributed to its uncompetitive power purchase agreements signed before NETA. TXU was pinpointed as the current reason for the recent sharp upturn in the wholesale price of electricity. Daniel Norton is a market analyst for the Energy Information Centre (EIC): "In the first two weeks of October the wholesale price went up 7%. Those rises were based on uncertainty over what TXU was going to do. If they went into administration there would have be a lot of industrial and commercial customers looking for contracts which would have put pressure on the market and caused an increase in prices." TXU has assured customers that prices won't rise, but this may only be short term, while they have to honour their existing customer contracts.

This is where the chance for alternative methods of power generation could arise. With the government's energy review due in spring, it is set to outline plans to move renewable energy sources into the market. Norton believes it will be a few years before renewables are a main stream energy source, but also that the government has no choice but to encourage them: "Renewables entry into the market will be over a much longer period of time. Over the next seven or eight years, certainly by 2010, a lot of the coal fired power stations will have to go. That's the core part of the review."

The methods government will use to increase take up of renewables are more than likely to reflect the Renewables Obligation scheme, an initiative which has proved successful so far. Companies must possess Renewable Obligation Certificates (ROCS) as proof of use of a defined amount of renewable energy. ROCS can then be traded, thus opening up the possibility for financial gains. Norton explains: "We already have Renewable Obligations, and if renewables are being supported in the market then there is no reason why they shouldn't grow. The government has no choice but to increase their support. Although the Renewable Obligation hasn't spurred the growth of renewables as much as the government had hoped, it has been quite successful – more so than Climate Change Levy."

Opportunity may also be knocking for chp. Producers have been struggling to find contracts, but with the government encouraging chp installations, the spring review should also provide plans to facilitate the growth of this market. But chp faces challenges according to Norton: "Because of the low prices it is difficult for small generators to find contracts and get a good price. The government has a target of 20 GW of chp to be produced by 2010 but at the moment this seems very optimistic. The smaller generators don't have the same flexibility as the large companies and they do find it hard."

The price of electricity has been so low for so long in the UK, that other, more environmentally friendly and energy efficient forms of generation have been unable to get any more than a toe in the door. Now with the squeeze being put on centralised power stations, and the issue of energy efficiency becoming more important, the crisis for the electricity market could signal an opportunity for alternative solutions.