David Prosser: Extra woolly jumpers all round

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The Independent Online

Outlook Ofgem's latest work on energy security makes bleak reading, but it is only half the picture. The regulator has looked at structural changes to the energy industry, but there is a mammoth financial challenge to address too, which the Government must work on in parallel with the Ofgem suggestions.

To put the scale of that challenge into context, the water industry has invested £85bn in infrastructure over the past 20 years, with regulation forcing them to spend and mandated returns on their money. The energy industry now has to invest at least £100bn over the next 10 years through unregulated mechanisms and with no promise of a set payback.

Just to be clear on how short the window of opportunity really is, unless we have agreement on how all this is achieved within three to four years, the targets for 2020 become impossible to reach.

Should we have begun to tackle this crisis earlier? The short answer is yes, but had Ofgem issued a paper like yesterday's three years ago, say, it would quickly have been redundant. The credit crunch, which has decimated the capital available for investment, was a game changer. So too was the realisation that international energy supplies might not be secure, following the crises seen between Russia and near-neighbours in each of the past two winters.

It is not too late to act, but higher prices are now inevitable. Even leaving aside the cost of investment, green taxes and levies that currently account for 9 per cent of your bill will rise to 25 per cent in today's terms by 2020. With one supplier, Scottish & Southern, saying yesterday that cash-strapped families have spent less on fuel this winter, despite the big freeze, the future looks chilly.