Energy prices could rise 60% by 2016

London - Investments totalling up to £200 billion will be needed to secure energy supplies and meet environmental targets, Ofgem said in a review of the UK energy markets. Consumers, it warned, are likely to face steep energy price rises as gas and electricity as power stations near their end of life and the global gas market becomes more volatile.

The energy watchdog presented four potential scenarios to assess the energy risk to the UK in the next 10 to 15 years. It forecasts that if global businesses experience a strong recovery whilst missing carbon-reduction targets, energy prices could increase by more than 60% by 2016. The scenario with the smallest price increase sees energy bills rise 14% by 2020 following the execution of green initiatives and a slow economic recovery.

However, Ofgem argued that if gas and electricity prices remain low in the short term then incentives to invest in renewables and nuclear will be reduced. The UK, it warned, will, therefore rely increasingly on gas from volatile global markets, causing a 22% increase in energy prices by 2020.

Another scenario predicts consumer bills to rise by 23% by 2020 if carbon-reduction measures are combined with strong economic resurgence. In this scenario, the report predicts that the UK’s demand for electricity will spike as a result of increasing reliance on technologies such as electric vehicles.

Paul Ekins, co-director for Energy Systems at UK Energy Research Centre (UKERC), has welcomed the focus on green technology investment but believes that Ofgem has not gone far enough in addressing the likely price rises.

‘The good thing about this report is that it is beginning to talk realistically about price rises,' he said. ‘In the extreme case, it predicts a 60% increase, but I believe that’s only the minimum type of energy price rise we are going to deal with. I wouldn’t be surprised if by 2020 prices had doubled in real terms.’

Energy utility companies believe a key factor in keeping these prices affordable will be the timescales involved in rolling out green technologies. EDF, for one, has urged the government to review planning restrictions that could stall the development of its four new nuclear reactors in the UK.

"The most important thing about Ofgem's report is that it emphasises the need to - as we are doing - get on with new nuclear power, new renewables, including wind which is unpopular with some people, and clean coal. And we are doing all of those things," said  Ed Miliband, energy and climate change secretary. "Reforms to the planning system and convincing the public about renewable technologies are also part of the strategy. However Government will need to intervene to ensure Britain¹s energy security and transition to greener supplies.

"For example we have plans to introduce a levy on household bills which will help pay for clean coal power stations. That¹s a hard thing to do and it is going to cost people money but is necessary to ensure the technology moves forward. That is an intervention by Government. If we leave it to the market we won't build clean coal. I think Government does need to play more of a role if we are going to get the low carbon transition and if we are going to get security of supply. But I'm confident that we can do it."