£200bn investment needed to meet UK energy needs and carbon targets

In its most comprehensive review yet of Britain’s energy supplies, the regulator has warned that consumers could face price hikes of between 14 and 60 per cent between now and 2020.

The report, called ‘Project Discovery’, highlights the tough challenges Britain faces in maintaining secure energy supplies whilst at the same time meeting its climate change targets, at a time of volatile world energy prices and Britain’s growing dependence on gas imports.

The report puts forward four scenarios that each show up the risks faced by the UK around its energy security over the next 10 to 15 years, particularly if oil and gas prices continue to rise and the country comes to rely too much on gas imports.

In one of the scenarios, domestic renewable targets are met through rapid economic recovery and a green transition, but domestic consumer bills increase by 23 per cent by 2020.

In a second scenario, economic recovery is slow and investment in renewables and cleantech comes from government stimulus packages, which lead to increases of 14 per cent in domestic consumer bills by 2020.

In all four scenarios there are reductions of carbon emissions of between 12 per cent and 43 per cent on 2005 levels, but two scenarios show what could happen if investment in green measures is not prioritised and Britain misses its carbon targets. In the worse case scenario, Ofgem predicts that domestic consumer bills could rise by more than 60 per cent by 2016 before falling back.

“Our scenarios suggest that Britain faces a tough challenge in maintaining secure supplies whilst at the same time meeting its climate change targets,” said Ofgem chief executive Alistair Buchanan. “These are big challenges. Consumers are already enduring high energy prices. This is why we are consulting with consumer and environmental groups, academic community and industry to ensure any policy proposals we make are grounded on the best evidence available.”

UK manufacturing body, EEF, described Ofgem’s report as a "real wake-up call”.

“This independent report confirms that our energy supplies and markets are likely to be severely tested over the next decade. It’s a real wake-up call for anyone who still underestimates the challenge of maintaining secure and competitive supplies whilst we rebuild our infrastructure and cut carbon emissions,” said EEF’s Roger Salomone.

Also commenting on the report, David Hunter of energy analysts McKinnon and Clarke said the Government needed to provide a clear energy strategy to encourage private funding in the UK’s ageing energy infrastructure. “Lack of clear direction from the Government has not given privately-owned energy companies confidence in investing in the UK’s energy market,” he said. “Unfortunately British consumers will end up paying higher prices for their energy – how much more depends on how fast the Government act to secure our energy future.”

EEF’s Salomone, meanwhile, questioned the validity of the UK’s renewable energy targets. “The real elephant in the room is the 2020 renewable energy targets and the dogmatic approach of specifying exactly how much renewable energy must be generated and by when. Our response to climate change must be robust but flexible, otherwise we risk exposing consumers and businesses to higher costs during what will be very challenging times,” he said.

Under binding European renewable energy targets, the UK is required to produce 15 per cent its energy from renewable sources by 2020. Currently, around two per cent of UK energy comes from renewables.

Britain has set itself binding targets to reduce its carbon emissions by 80 per cent by 2050.

Ofgem said it would be putting forward proposals on the UK’s energy security based on today’s consultation in the New Year.