Energy prices 'may rise 25 per cent over 10 years'

Sarah Arnott
Wednesday 08 December 2010 01:00
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Domestic energy prices could rise by as much as a quarter over the coming decade, the "big six" gas and electricity suppliers warned MPs yesterday.

Rising wholesale costs, volatility in international energy markets and the need for massive green infrastructure investments will put unavoidable upwards pressure on prices, executives from British Gas, EDF Energy, E.On, Npower and Scottish & Southern Energy told the House of Commons Energy Committee.

Phil Bentley, the managing director of British Gas, said: "If you look forward to 2020, we are all expecting to see higher wholesale prices and higher transmission and distribution charges across the industry, as we are having to make larger investments."

"We would expect bills up by 15 per cent to 25 per cent by that time," Mr Bentley added, echoing predictions from industry regulator Ofgem.

The industry is already facing criticism of its pricing policies. Three companies – British Gas, ScottishPower and Scottish & Southern – have announced price rises in recent weeks, a move described by consumer groups as "a kick in the teeth" for householders facing unusually cold weather.

The industry regulator, Ofgem, estimates that suppliers' profit margins have shot up by nearly 40 per cent since September. Following the recent price rises, the watchdog launched an investigation of the energy market to reassure consumers that energy companies were not "lining their own pockets", as Ofgem's chief executive, Alistair Buchanan, put it.

The only way to lower energy bills is to cut domestic consumption, the energy companies claimed yesterday. "Unfortunately, the inevitable direction of wholesale energy prices is upwards, so in terms of tariffs I think we will see continuing rises through the next decade," said Paul Golby, the chief executive of E.On UK. "The only way we can combat that is through energy efficiency measures, helping customers keep warm but use less energy."

Meeting Britain's legally binding environmental targets, while keeping the lights on, will require some £200bn of investment over the next decade – equivalent to building two Channel Tunnels every year, Mr Golby said.

Scottish & Southern Energy's director of supply, Alistair Phillips-Davies, said the impact of so-called "non-energy" costs, such as efficiency investments, had already pushed bills up by a fifth since 2005, with more to come. "Our estimate to 2015 is that there will be a 14 per cent to 15 per cent rise in non-energy costs," he said. He also questioned Ofgem's calculation that margins have widened to £90 per customer since September. Reduced consumption had already pulled the figure down by a third, he added.

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