Ofgem: get ready for higher fuel bills
Updated on 09 October 2009
That was the message today from the energy industry regulator, Ofgem, which says bills could rise by 60 per cent by 2016. John Sparks reports.
In a review of Britain's energy market, Ofgem said an investment of up to £200bn is needed to secure supplies and meet environmental targets.
It lists four possible scenarios for the future and in one - that of a strong resurgence in global economies along with missed renewable and carbon targets - Ofgem warned prices could surge by more than 60 per cent by 2016 before falling back.
Ofgem said the cheapest scenario, with a hike in bills of 14 per cent by 2020, factors in a slow recovery from the recession, coupled with global green stimulus packages.
In this option, high carbon prices and government policies support investment in renewables, nuclear and carbon capture, and storage.
Another scenario sees green measures coupled with strong economic growth and consumer bills rising by 23 per cent by 2020.
Ofgem said this would see Britain's reliance on gas fall, but demand for electricity would increase with a greater use of electric vehicles and heat pumps.
The regulator said that if the recession continues and gas and electricity prices remain low in the short term, it could reduce the incentive to build new nuclear and renewable power infrastructure.
In this scenario, the country would be increasingly reliant on imported gas for new gas-fired power stations, and while bills would not rise by much in the early years, they are expected to climb 22 per cent by 2020.
Ofgem said the possibility of a 60 per cent hike in bills by 2016 would be caused if wholesale gas prices spiked as a result of resurgent global economies competing for energy resources.
This scenario also assumes that no new nuclear facility would become operational before 2020. But the regulator said even in this scenario, bills would drop back, and it predicts that by 2020 consumers would pay 25 per cent more than this year.
The four scenarios include reductions in carbon emissions of between 12 per cent and 43 per cent from 2005 levels.
Ofgem said the biggest challenges to Britain's energy supply are the country's growing reliance on a volatile global gas market and its ageing power stations, which are nearing the end of their lives.
The regulator also said "significant changes" may have to be made in the way we consume and generate power to manage the "variability associated with increasing reliance on wind power".
It said a "massive" investment of between £95bn and £200bn in power plants and other infrastructure was necessary "to secure both energy supplies and climate change targets".
Ofgem Chief Executive Alistair Buchanan said: "These are big challenges. Consumers are already enduring high energy prices.
"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."
