A quarter of families face fuel poverty by 2015

Living in ‘fuel poverty’ is defined by the government as spending 10 per cent of median household income on electricity and gas. The average bill for duel fuel customers will reach £1,293 next month, which is 6 per cent of median household income.

The six main energy retailers recently announced average price increases of 15 per cent for the coming winter. But a Deutsche Bank report into the future of energy bills found that a further price increase of 25 per cent can be expected for gas and electricity by 2015.

The rise in energy bills has been driven by Britain’s increased dependence on imported fuel and increases in wholesale costs.

Over the last ten years, the average fuel bill has risen by around 115 per cent and Deutsche Bank warned of a return to the costs of 1970s energy bills.

Green policy is pushing up costs

Green policies such as the government’s “renewables obligation” already add around 10 per cent on to current energy bills, according to the energy regulator Ofgem. The renewables policy requires suppliers to buy a proportion of electricity the EU’s carbon trading scheme and renewable sources.

Mitigating bill increases would involve abandoning green targets or implementing a radical refinancing of the industry. Martin Brough, Deutsche Bank

The government has committed to spending £200bn on new infrastructure by 2020, including an expansion of wind power, and the energy secretary is expected to restate the government’s plan to build new nuclear power stations in a speech on Thursday.

Plans to introduce a carbon floor price in 2013 – intended to make coal and gas-fired power stations more expensive to operate – will further increase energy bills, according to Deutsche Bank.

Abandoning green policies, although “radical” could cut 15 per cent of bills from 2015, said Martin Brough, author of the report and director of industrials research at Deutsche Bank. “In our view, mitigating bill increases would involve abandoning green targets or implementing a radical refinancing of the industry,” he said.

Investment in renewables is a ‘long term’ solution

The Department of Energy and Climate Change said there was no plans to put green targets on hold to reduce energy bills. “The long term answer to getting away from the fuel hike cycle is shifting on to a greener mix of fuel,” said a department spokesman.

“It requires big investment, that’s what these green policies are about. If you scrap them, we would be shooting ourselves in the foot. The alternative, where we carry on being held hostage to fuel prices is just not sustainable.”

However Ann Robinson, director of consumer policy at uSwitch told Channel 4 News: “The government needs to seriously think again about what strategy can keep the lights on, but at an affordable price. It’s not going to take very much to tip the majority of us into fuel poverty.”

Retail profits not to blame

Much of the debate around energy prices has so far centred around the prices set by the main energy retail companies. However experts say rising costs are largely because the UK now imports so much fuel, as it did in the early 1970s, and not because of profit-driven margins.

“A political expectation is being created in people’s minds that if we can bash the retailers, that will lower bills. But the numbers just don’t support that,” said Mr Bough

“While it is tempting for politicians to blame excessive retail profits, the reality is that the UK is once again a net importer of energy, and international fuel prices have doubled.”

Deutsche Bank predicts that of the £48bn spent on energy in 2015, only £1.3bn is the post-tax profits of the retail companies.