Watchdog warns of impending rises in cost of energy

Energy regulator Ofgem has published the findings of ‘Project Discovery’, a comprehensive review of Britain’s gas and electricity supplies, pointed to high likelihood of dramatically increased annual utility bills.

Chief among the challenges identified in the report are the growing exposure to a volatile global gas market and power stations nearing the end of their life.

Ofgem drew up four energy scenarios to assess the energy security risks over the next 10-15 years. This revealed a range of potential risks to supplies when exposed to shocks. Further, Ofgem has identified the need for investment of up to £200 billion in power plant and other infrastructure over the next ten years to secure both energy supplies and climate change targets. The need for this investment arises at a time of volatile world energy prices and Britain’s increasing dependence on gas imports.

Ofgem’s four scenarios highlight a number of risks, including increased exposure to uncertainties in the global gas market leading to potential price increases, changes needed in the way in which we generate and consume power in response to the variability associated with increasing reliance on wind power, and massive increase in level of investment needed leading to rising consumer bills.

“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.”

Ofgem’s worst case scenario predicts an annual bill of £1,982 in 2016, up from £1,239 today. But uSwitch.com has warned that the report may be in danger of understating the amount that energy bills could rise. uSwitch.com research earlier this year predicted that bills could reach as high as £4,733 a year by 2020[1], nearly four times higher than they are today. This figure takes into account ongoing pricing trends coupled with investment in infrastructure, the cost of cutting carbon and boosting energy efficiency

Ann Robinson, Director of Consumer Policy at uSwitch.com, said:

“It’s great that Ofgem have released this information, but I feel that consumers are only getting half the picture. If bills rise by the amount that Ofgem suggests we will all have got off lightly. If Ofgem continues to ignore the impact of wholesale and pricing trends in these scenarios then it will be doing consumers a disservice.”

“This is a wake-up call for us all though. The £5,000 a year energy bill may seem like an outside possibility, but we have to remember that energy bills doubled in the last five years alone and that the huge investment needed just to keep the lights on in Britain will alone add £548 a year onto our bills. The fact is we are entering a new era of high cost energy and households will have to adapt their behaviour accordingly.