Britain faces the possibility of power blackouts and even higher electricity prices within three years as a result of coal-fired and other polluting power stations being phased out more quickly than expected.

The warning, in a report by the energy regulator, Ofgem, could embolden the government to trigger an early "dash for gas" which critics fear would mean higher carbon pollution for decades to come.

Ofgem believes that the spare generating capacity available to cope with peaks and troughs in power demand will fall from the current level of 14% to just 4% as early as 2015.

"There could be insufficient power within three years of around 29,600 megawatt hours, equivalent to the annual demand of approximately 9,000 households," says the Ofgem report. It also mentions the possibility of blackouts.

Ofgem pointed out that National Grid, which runs the pylons and pipes and co-authored the report, can safeguard the position of householders if all else fails by cutting power to businesses and industrial customers under the terms of special contracts.

National Grid also has contingency plans to avoid interrupting supply to customers by asking power stations to maximise generation and importing more power from Europe.

However, Andrew Wright, a senior executive at Ofgem, played down the chances of a return to 1970s-style power cuts. "It is too early to be alarmist about the lights going out," he said on Friday, but "it is likely the tightening of the market will lead to higher wholesale prices".

The cost of fuel is already a major political issue. Britain's second largest energy company, SSE, is planning to increase the price of a typical dual fuel bill by 9% from 15 October and other power companies are expected to follow.

Government hopes that it could encourage the building of a new generation of nuclear power stations have been hit by Chinese, German and other major investors pulling back from expected UK investment. At the same time, wind farms have been delayed by planning objections.

A report by Ofgem three years ago warned that Britain faced "unprecedented challenges" as a result of the global financial crisis, tough environmental targets and the closure of ageing power stations.

The regulator admittedon Friday that despite a determination to safeguard the country's power structure by encouraging the building of lower-carbon power sources the "problems have not gone away".

Ed Davey, the energy and climate change secretary, said his forthcoming energy bill and a series of measures on market reforms, about to be published by Ofgem, should help tackle the issue: "Security of electricity supply is of critical importance to the health of the economy and the smooth functioning of our daily lives. That is why the government is reforming the electricity market to deliver secure, clean and affordable electricity."

The Greenpeace policy director, Doug Parr, said the Ofgem report "sends out a clear warning that we need to reduce demand" rather than build new power stations.

The energy outlook has been made more difficult by a 38% fall in coal prices in the past 12 months. This has made coal burning more profitable than ever for power generators, according to the independent energy consultant Inenco.

"However, the accelerated use of coal in the past year does now mean that some older, more pollutant coal power plants will have to come offline earlier than first predicted, leading to a bigger energy crunch further down the road," said Gary Hornby, an Inenco analyst.

Audrey Gallacher, the director of energy at Consumer Focus, said householders needed protection from price spikes as well as power cuts.

"It is right that we close our oldest and most polluting energy plants, but it is essential that new initiatives deliver investment in alternative energy generation to meet this gap," she said, adding: "At the same time, however, consumers cannot write a blank cheque to cover the costs of new energy."