Alarm over Ofgem price hike warning

Feb 19 2013

Consumers will be "alarmed" at Ofgem's warning that they should prepare for higher energy costs after yet another winter of inflation-busting price hikes, a watchdog has said.

Ofgem chief executive Alistair Buchanan issued the stark warning to consumers and businesses to prepare for higher prices as power plants close, foreign gas supplies shrink and increasing demand tightens the British energy market.

Writing in the Daily Telegraph, Mr Buchanan said: "We have to face the likelihood that avoiding power shortages will also carry a price. If you can imagine a ride on a rollercoaster at a fairground, then this winter we are at the top of the circuit and we head downhill - fast.

"Within three years we will see reserve margin of generation fall from below 14% to below 5%. That is uncomfortably tight."

Compounding factors include expected gas supplies from the Russian Shtokman field being cancelled, China's demand rising by 20% a year and Asian gas costing 60% more than UK supplies.

Which? executive director Richard Lloyd said: "Consumers will be alarmed at Ofgem's prediction that they will pay an even higher price for our increasing reliance on imported gas. After another winter of inflation-busting price hikes, the rising cost of energy is already one of the top financial concerns for hard-pressed households."

The Government said it was acting to prevent any possible "looming energy gap".

A spokesman for the Department of Energy and Climate Change said: "Our energy system faces significant challenges over coming years, including the closure of around one-fifth of our ageing power stations, so, as Ofgem highlights, we cannot afford to be complacent and may face a looming energy gap.

"The reforms we are making to the electricity market through the Energy Bill and through our gas generation strategy are aimed at plugging this gap in order to keep the lights on. We have legislated to introduce a capacity market that will help guard against blackouts and ensure there is sufficient supply when margins get tight.

"We are opening up the electricity market to incentivise a record £110 billion of private sector investment in new clean power generation - in renewables, new gas, nuclear and carbon capture and storage. We can't put all our eggs in one basket, we need a diverse energy mix. This is the best solution to guard against high price of wholesale gas which drives up consumer bills."