Page last updated at 18:21 GMT, Friday, 9 October 2009 19:21 UK

Fear of steep energy bill rises

Ofgem chief executive Alistair Buchanan: "Prices are looking to go upwards"

Domestic UK energy bills could rise by 60% by 2016 in a worst-case scenario identified by the energy regulator.

However, most other estimates outlined in the Ofgem report would see prices rise between 14% and 25% above inflation by 2020.

The review also said that up to £200bn of investment was needed to secure supplies and to meet carbon targets.

Volatile gas markets and power stations nearing the end of their use were the chief concerns, the regulator said.


The report was the result of Project Discovery, a scheme that Ofgem started in March, in which it outlines four possible scenarios for energy use and security in the next 10 to 15 years.

Potential energy bill rises
Dash for energy: Global economies bounce back, but there are concerns over security. Environmental targets are missed and no new nuclear plant is operational before 2020. Competition between countries for energy resources results in tight gas supplies and high fuel prices. Domestic energy bills rise by 60% by 2016 before falling back.
Slow growth: There is low investment in gas and electricity infrastructure during the recession. Low gas and electricity prices, coupled with low carbon prices, reduce incentives to build nuclear and renewable power plant. Dependence on imported gas eventually increases consumers' bills by 22% by 2020.
Green transition: Rapid economic recovery and significant expansion in green measures lower gas demand, but increase electricity demand for electric vehicles and heat pumps. Domestic energy bills rise by 23% by 2020.
Green stimulus: During a slow economic recovery, governments support stimulus packages targeting environmental goals. Consumers energy bills rise 14% by 2020.

The report pointed out the need for investment at a time of volatile world energy prices and Britain's increasing dependence on gas imports.

This exposure meant that supply disruptions across the world could affect prices. The scenario in which prices could spike by 60% was that of a strong resurgence in global economies, along with missed renewable and carbon targets, and no nuclear facility built before 2020.

Ofgem figures show that the average annual household gas bill rose by 120% from September 2000 (£365) to September 2009 (£804). Over the same period, the average annual household electricity bill went up by 48% from £299 to £443.

The report said the cheapest future scenario - with an increase in bills of 14% by 2020 - factored in a slow recovery from the recession, coupled with global green stimulus packages. In this option, high carbon prices and government policies would support investment in renewables, nuclear and carbon capture and storage.

But significant changes were needed in the way energy was generated and consumed, the report added.

"These are big challenges. Consumers are already enduring high energy prices," said Ofgem chief executive Alistair Buchanan.

"This is why we are consulting with consumer and environmental groups, the academic community and industry to ensure any policy proposals we make are grounded on the best evidence available. Early action can avoid hasty and expensive measures later."

Christmas lights
The costs of lighting is set to rise, the energy regulator says

The report said that recent events such as the Russia-Ukraine gas crisis had raised concerns about the security and price of gas supplies, given that many European countries were becoming increasingly dependent on imports.

It said that the retirement of older nuclear plants and closure of coal and oil plants in the UK by the end of 2015 could "pose a threat to security of supply".

Double the recent level of investment was needed, the report suggested.


Mr Buchanan said that the good news in the report was that emissions would fall by up to 43% from 2005 levels, describing the climate change targets as "very, very tight".

The report came as the UK was facing the effects of the financial crisis, an acceptance that it was "no longer an energy island" and that it would see a revolution in the approach of power generation, he added.

The report said that gas and electricity supplies this winter were likely to be adequate, with a substantial reserve margin in electricity.

Mr Buchanan said there could never be a guarantee that the lights would stay on, but by looking ahead, the industry could be prepared for the changes needed and consumers would not pay for these changes being made too late.

David Porter, chief executive of the Association of Electricity Producers, said that the Ofgem report showed that the government needed to ensure the UK was an attractive prospect for investors. The billions of pounds needed for investment in energy would come from the global markets.

He said it remained to be seen how much extra people would pay on their bills.

'More vulnerable'

Garry Felgate, chief executive of the Energy Retail Association, said: "Energy suppliers face the challenge of meeting our future energy needs and reducing carbon emissions, all at an affordable cost to customers.

Put in a new efficient gas boiler, convert to low-energy light bulbs, and turn off standby units. My monthly payment is down from £101 to £48.
Andrew Taylor, Nottingham

"Once again, Ofgem's report highlights how difficult these needs are to balance, at a time when bills already include the costs of energy efficiency schemes, renewable energy obligations and transmission and distribution charges."

Consumer group Which? called for more urgent action from the government.

"The way consecutive governments have passed the buck on this issue is tantamount to negligence. By ignoring security of supply for so long, they've saddled consumers with what could be a colossal bill," said the group's energy campaigner Dr Fiona Cochrane.

"It's good that Ofgem has finally looked at this issue but what is needed now is quick and decisive action to ensure that consumers have safe, secure and affordable energy."

Energy Secretary Ed Miliband told the BBC that increasing energy demand in China and India meant that the UK would be "more vulnerable" if it relied on gas.

He said that the government needed to intervene more, rather than leaving the incentive of extra investment to the markets. He said reforming the planning laws was key to building the generation of alternative energy.

The Ofgem report is now going to consultation, with responses required by 20 November.

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