Energy prices will rise again

Ofgem, the Government’s gas and electricity watchdog, yesterday predicted sharp rises in energy prices over the next five years as the UK becomes more dependent on imported gas. Ofgem’s chief executive, Alistair Buchanan, warned that our quickly diminishing energy supplies, and lack of new development, may lead to a “near-crisis” in energy shortage between 2015 and 2018.

Why are domestic energy supplies low?

Speaking to the BBC, Mr Buchanan explained that the UK’s current energy capacity will be cut by 10% in a month’s time, as old oil and coal-powered plants go off-line 3 years earlier than predicted to meet environmental targets. This underlines the virtual certainty that the UK’s power station capacity will be unable to keep up with demand in a few years’ time. Furthermore, no new nuclear, clean coal or carbon capture programmes are scheduled to start running until after 2020. In order to fulfil the country’s energy demand, energy companies will be forced to rely more on foreign-sourced gas, which will account for 60% of our energy needs, compared to 30% today.

Why will energy prices rise?

In addition to the imminent pressure on Britain’s domestic power supply, foreign gas prices are also expected to shoot up over the coming years. This will create a “double squeeze” effect, ultimately increasing our bills. Mr Buchanan has refused to speculate on how much bills are likely to rise, but has cited the situation in Japan, a country reliant on gas but lacking its own supply, where the bills are currently 60% higher than they are here. Other compounding factors for the predicted cost rises include China’s gas demand increasing by 20% a year, and the expected severance of supply from the Russian Shtokman field – one of the largest natural gas fields in the world.

Why hasn’t there been enough investment in new, cleaner plants?

In light of these gloomy predictions, consumers may very well be wondering why the energy companies and the Government haven’t done more to invest in new power stations. After all, energy prices and company profits have been steadily rising over the past few years. One of the likely reasons for this is the recent economic climate; the financial downturn has discouraged energy companies from investing in new and expensive power plants. Also, despite pushing the necessity of energy efficiency, the Government has been slow in giving the green light for many new energy generation construction programmes.

Ofgem have reassured consumers that energy companies will not be given free rein to take advantage of increased bills, and are adamant that market reforms are continuing in the right direction. One thing’s for certain, if the UK’s future energy supply is to be secured, energy companies will have to work more closely with the Government to invest in new, cleaner power sources.