Fear of 'huge' energy bill rises
October 9, 2009
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.
Possibilities
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.
It pointed out the need for investment came 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.
The report said the cheapest scenario - with a hike 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 are needed in the way energy is 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."
The report said that recent events such as the Russia-Ukraine gas crisis had raised concerns about the security and price of gas supplies at a time when 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.
Emissions
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.
He 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.
The report is now going to consultation, with responses required by 20 November.
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