Energy reforms would send prices ‘rocketing’

4 February 2010

4 February 2010 | Jake Kanter

Proposals to reinvigorate the UK energy market would mean significant price hikes for energy buyers, according to experts in the sector. 

There is “reasonable doubt” over the market’s ability to deliver sustainable supplies over the next decade, said energy regulator Ofgem, in a report published yesterday.

A combination of the financial crisis, tough environmental targets, increasing dependence on gas imports and the ageing and closure of power stations means future energy shortages are likely, the report found.

The industry would need up to £200 billion of investment to turn itself around. Ofgem called for radical reform, including promoting “green” energy and creating a government owned or regulated “central energy buyer”, where all future investment would be co-ordinated through a single entity.

Ofgem CEO Alistair Buchanan said: “We do not advocate change lightly, but all the facts point to the need for reforms now to provide resilient supply security. Acting earlier will also help keep costs as low as possible for consumers and business.”

But John Westwood, chairman of analysts Douglas-Westwood, said energy costs would rocket as a result of the overhaul: “Building power generation has got to be funded and electricity users will pick up the tab.”

Energy consultant Chris Lewis believed that price increases would be “another nail in the coffin of British industry”.

Westwood and Lewis both commented that recent governments could have done more to address the issue earlier. 

Despite the warnings, energy and climate change secretary Ed Miliband said the government was “confident Britain will meet its security of supply needs” through to 2020. 

He accepted, however, that in the long-term “significant reform” of the market would be needed to deliver affordable and secure energy. The government is to set out this plan at the next budget.

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