Last week, the Guardian revealed that United Kingdom government officials are now negotiating to soften the impact of EU directives affecting the operation of fossil fuel-fired power stations and their emissions of sulphur dioxide (SO2) and nitrogen oxides (NOx). This is enormously embarrassing for the UK, but no surprise.

Indeed, it suggests that government, or at least the civil service is beginning to appreciate the full impact of the regulations for the future of the UK's electricity supply. Currently, the UK faces significant shortage in generation capacity by 2015 that is likely to lead to price rises for the consumer (a document leaked to the Guardian suggests price hikes of 20%) or power cuts at times of peak demand.

Indeed, industry analysts have been predicting for some time that the lack of reliable capacity in the UK electricity industry would force the government to seek humiliating exemptions from the EU Large Combustion Plant Directive and its successor legislation in order to keep dirty power stations online that would otherwise be phased out by the directive.

The government has underestimated the impact of the regulations and has failed to recognise that the LCPD would probably require the closure of the bulk of the UK's coal generation fleet by 2016. It has been unduly optimistic with regard to the construction of new combined cycle gas turbines (the only large power generation that will be built under the present policy regime in the required time frame, nuclear being unlikely to make any contribution until 2020).

It is also reckless in committing the UK to extreme dependence on imported gas (approx 80% by 2020) at a time of rapidly growing international competition for this fuel. In the wake of the Ukraine crisis this winter, this point is probably self-evident to all. Ministers have also failed to understand that the security of supply contribution from renewables, even if built, would be modest

The LCPD will close 13GW of existing coal and oil-fired generation because they do not comply with the SO2 regulations laid down in the directive. It is this pollutant which causes acid rain. Of those power stations that are sulphur compliant, some 20GW will probably fail to add equpiment to remove NOx because of high cost, physical difficulty, and the additional non-compliance of these plants with recently enacted climate change legislation.

30GW plus is a very large part of the UK's current generation portfolio – approximately 78GW – and is roughly half of the 60GW peak load on the network (5.30pm on a cold weekday winter afternoon).

Rectifying this situation requires significant global manufacturing resources and capital – some £100bn over the next decade.

After years of denial and misplaced optimism, awareness of the crisis has been growing in government. John Hutton while at the Department of Business, Enterprise and Regulatory Reform, seemed to understand this well. But the ministers at the newly created Department of Energy and Climate Change in their public statements seem to have no notion of the situation. Mike O'Brien, the Energy Minister, even said on 12 November that there was no problem, and that the lights "would burn even brighter" in 2015 than they do now.

Nevertheless, concern is growing in the industry and, it seems, the civil service. Hence the attempt by the government to quietly finesse the LCPD's successor legislation, the Integrated Pollution Prevention and Control directive. On the one hand, we appreciate the necessity of this action, but we deplore the air of fudging secrecy which surrounds it. Not only is this an undemocratic attempt to evade an admission of culpability, but it will deepen the anger of our EU partners who have complied with acid rain legislation. Better to honestly admit fault and seek exceptions from the new directive, laying out a clear plan for retiring our non-compliant plant as soon as possible and replacing it with new generation capacity that is fit for the 21st century.

A modern diversified power fleet must consist of nuclear plants, high-efficiency and therefore cleaner coal-fired power stations, including gasifiers predesigned to be ready to capture CO2 for the purpose of enhanced oil (and gas) recovery in the North Sea. Dedicated biomass and unlimited co-firing of biomass with coal might also help here, although most of this fuel will have to be imported. Offshore wind will also assist.

Furthermore, every means must be found to diversify our sources of gas supply, including the manufacture of synthetic methane from coal, with the resulting CO2 being captured. Additional gas storage, currently at a miserable 14 days' supply, is an imperative. Even assuming that this emergency plan is undertaken there is still the major risk of either a severe energy price shock or of interruptions of supply.

Even with these measures the UK faces a hydrocarbon trade deficit that will grow to over 150m tonnes of oil equivalent by 2015. Assuming a price of $100 per barrel of oil equivalent, the balance of trade will grow from $35bn in 2008 to $96bn per year in 2015. With no end to this growth in sight, it is reasonable to ask how the UK will generate wealth to pay for this vast, permanent, and growing imbalance.

John Constable is the director of policy and research of the Renewable Energy Foundation and Hugh Sharman is the founder of energy consultancy Incoteco. See Petroleum Review for a longer version of this piece.