Ofgem predicts Energy Price Rise

The UK may need to invest up to £200bn to secure energy supplies and meet environmental targets, according to energy watchdog Ofgem.

In a report reviewing Britain’s energy markets, the regulator said that consumers may face steep energy price rises as gas and electricity supplies become increasingly unstable due to volatility in the global gas market and power stations approaching end of life.

The group outlined four potential scenarios to assess the energy risk to the UK in the next 10 to 15 years. It forecasts that if global businesses experience a strong recovery whilst missing carbon-reduction targets, energy prices could increase by more than 60 per cent by 2016.

The worst scenario for renewable power and the economy sees a rapid economic recovery and an acceleration in the building of conventional thermal power plants and subsequent increase in fuel imports. This scenario would only see renewables contributing 15% to the electricity mix (half the 2020 objective). “Competition between countries for energy resources results in tight gas supplies and high fuel prices,” says Ofgem. “The effect on domestic consumer bills is an increase of more than 60% by 2016 before falling back”, it concludes.

“These are big challenges. Consumers are already enduring high energy prices,” said Ofgem chief executive Alistair Buchanan. “Our scenarios suggest that Britain faces a tough challenge in maintaining secure supplies whilst at the same time meeting its climate change targets. However, there is still time to act. Ofgem will be putting forward proposals in the New Year… to ensure that Britain’s energy industry can meet the challenges ahead.” “Putting our faith into fossil fuels could irreparably damage the environment and still not save us any money,” said Maria McCaffery, BWEA Chief Executive. “Wind, wave and tidal energy can deliver both energy security and price stability,” she added. The BWEA also emphasised that no other low carbon technologies apart from wind, wave and tidal will be available in quantity within the timescales required.

Carbon capture and storage, also known as ‘clean coal’, is yet to be tested on a large scale, while any new nuclear power stations are unlikely to be ready before the end of the next decade. It must also be borne in mind that while ‘clean coal’ and nuclear have low carbon credentials, neither use sustainable resources nor both are set to further increase fuel costs.