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Ofgem Warns of Unaffordable Energy Bills by 2020

By David Holmes on February 9, 2010

Gas & Electricity PricesOfgem, regulator of the gas and electricity markets in Great Britain, has sounded a further warning over the cost of energy bills facing domestic consumers. Speaking to BBC Radio Four, Alistair Buchanan, Ofgem’s Chief Executive, claimed energy bills could rise by as much as 25% in the years leading to 2020.

Mr Buchanan said: “The higher cost of gas and electricity may mean increasing numbers of consumers are not able to afford adequate levels of energy to meet their requirements”. The announcement follows growing concern within Ofgem that the unprecedented combination of environmental targets, dependency on gas imports, closure of defunct or ageing power stations and the global economic crisis will further hike up prices for consumers.

Furthermore, there is increased speculation the availability of oil will reduce sharply within the next few years. According to Sir Richard Branson, the “next five years will see us face another crunch – the oil crunch… Our message to government and businesses is clear: act. Don’t let the oil crunch catch us out in the way that the credit crunch did”. Independent oil consultant, Chris Skrebowski, who prepared a portion of the report for Sir Richard Branson, said that Britain is particularly vulnerable to the issue of peak oil, which “is likely to put pressure on the UK balance of payments and also likely to put a downward pressure on the valuation of sterling”. In other words, as Britain has shifted from an exporter of oil and gas to an importer, the country is much more dependent on external market factors and more vulnerable to price changes.

Ofgem’s renewed warning about domestic energy bills is also partly based on its proposed £200 billion upheaval of the energy sector, which it argues is required to produce a more efficient, effective, sustainable and affordable energy network. However, whilst it is thought that Ofgem’s £200 billion proposal will add £300 to the predicted £2,000 per year energy bills consumers can expect by 2020, the energy comparison website uSwitch has estimated energy bills could top £4,000 by this date if events continue to conspire against the UK energy market.