Domestic energy bills to rise by 25% by 2020!
09/10/2009
Ofgem have today published a comprehensive review of Britain’s energy supplies entitled Project Discovery, in which they have identified the likelihood of domestic energy bills rising by 14-25% in real terms by 2020, in order to help meet climate change targets and secure supplies. This view is consistent with IPA Energy + Water Economics’s own analysis – as detailed in PowerView, our quarterly assessment of the potential long-term development of the Great Britain wholesale electricity market.
Our central scenario forecasts that wholesale electricity and gas prices could rise by around 40% by 2020, which, all else being equal, would suggest an increase in average customer bills of just under 30% in real terms. This is a consequence of both a potential increase in underlying commodity prices and also the significant investment required in new power stations, which could be as much as £75 billion by 2020 (with additional capital required for associated infrastructure to connect these to the grid). IPA forecasts that a similar amount again would be required in the subsequent decade to maintain security of supply and help decarbonise the power sector, with carbon emissions falling by nearly 70% by 2030 compared to 2005 levels. In such a scenario, new onshore and offshore wind and nuclear would account for 70% of total electricity generation.
This highlights the difficulty in balancing the conflicting objective of environmental protection, security of supply, and affordability. The challenge faced by the industry and Government over the next decade is to ensure that policy and investment decisions are taken in a timely manner so that these objectives can be met in an economically optimum way.
For more information on Powerview - our quarterly assessment of the potential long-term development of the Great Britain wholesale electricity market - please contact Nikhil Venkataswaren on +44 (0)131 240 0840.
