* Coal, oil plant closures by 2015 may cause shortfall
* Consumer watchdog warns of price spikes
* Investment climate for new plants unclear
(Updates with comments from watchdog)
LONDON, Oct 5 (Reuters) - Britain faces a battle to keep the lights on in the next three to four years, its power regulator said on Friday, due to the closure of coal and oil-fired plants to cut carbon emissions.
Spare electricity generation capacity in the system, called the margin, could fall to 4 percent by 2015/2016 from 14 percent now, Ofgem said in a report.
This leave would leave the country little leeway if any plants were to suffer unplanned outages or if supply of power imports from Europe were disrupted.
Ofgem warned that uncertainty over the government's plans to revamp the electricity market meant it was unclear whether new, cleaner plants would be built to bridge the shortfall.
"What strikes me as alarming is the drop in spare capacity ... It sounds like they (Ofgem) are concerned about the potential for blackouts," David Stokes, director at Energy Consultancy Timera Energy, told Reuters.
Energy watchdog Consumer Focus said the country could face electricity price spikes as a result of the dwindling domestic capacity and over-reliance on electricity imports.
"Narrower margins mean the risks of outages are higher and scarcity of energy could also feed into possible price rises in future. Consumers need protection from price spikes as well as power cuts," Audrey Gallacher, Consumer Focus Director of Energy, said in a statement.
Nine UK-based coal and oil fired plants with a combined generating capacity of 11.5 gigawatts (GW) are due to close by 2015 or when they have completed 20,000 hours of operation for coal-fired power stations or 10,000 hours for oil-powered facilities, under EU legislation aimed at limiting emissions.
But the owners of four plants, with a combined generation capacity of around 6 GW have already said they will close their plants by March 2013 and Ofgem said in the report that most plants would shut "well before the 2015 deadline".
CHALLENGE
Britain's energy industry faces "unprecedented challenges ... to attract the investment to deliver secure, sustainable and affordable energy supplies for consumers," said Ofgem Chief Executive Alistair Buchanan.
The government has launched a wide-reaching Electricity Market Reform Bill designed to give support to investors in new low-carbon electricity such as nuclear and renewable generation.
The support is expected to come through so-called contract for differences (CfDs), which amounts to a long-term price contract for the electricity.
But the government has yet to decide exactly how much these contracts will be worth, making it difficult for investors in new plants to determine the economic viability of projects.
"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," Edward Davey, Secretary of State for Energy and Climate Change, said in a statement.
The government ordered the Ofgem electricity capacity assessment ahead of the introduction of the electricity bill, due next year.
Trade group Energy UK said in a statement on Friday 150 billion pounds of investment was needed to replace Britain's ageing power plants.
(Reporting By Susanna Twidale; Editing by Pravin Char)
((susanna.twidale@thomsonreuters.com)(+44 0 207 5424753))
Keywords: OFGEM/BRIEF