Energy bills go out of control as shortages will see prices rocket

Crippling increases in energy prices driven by the desperate need to avoid power shortages could cast thousands more West Country householders into fuel poverty.

That was the chilling warning issued yesterday by Alistair Buchanan, chief executive of watchdog Ofgem, who said that consumers and businesses should prepare for even higher energy costs after yet another winter of inflation-busting price hikes.

Mr Buchanan said consumer prices would be affected by power plant closures, shrinking foreign gas supplies and increasing demand.

“We have to face the likelihood that avoiding power shortages will also carry a price,” he warned. “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 per cent to below five per cent. That is uncomfortably tight.”

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Thousands in the West Country are already struggling to pay their fuel bills where a combination of low wages and an ageing population mean the problem is particularly acute.

About one in five properties are regarded as being in fuel poverty – where households spent 10 per cent or more of their budget on energy bills.

“At the moment a lot of pensioners are having a job to cope with energy prices as they are,” said pensioners’ campaigner, Bob Drabwell, 78.

“If there was, say, a 10 per cent increase I don’t know how people would manage. Pensions are not keeping pace with inflation and if we get a sudden increase in prices then more and more people will be put on the breadline. There’s no answer to it. The Government doesn’t seem to care at all about retired people.”

Consumer Focus chief executive Mike O’Connor said the Government had to act to “protect the most vulnerable consumers who can least afford higher prices”.

“We need to do more to ensure our homes do not leak energy and we are calling on Government to use the funds they raise in carbon taxes to insulate our houses to modern standards, saving the poorest in society money on their bills, as well cutting carbon emissions and creating jobs,” he said. “With six million households in fuel poverty, rising to over nine million by 2016, and an increasing proportion of our incomes being spent on essential items like energy, this latest news, while not surprising, is chilling.”

Compounding problems for the UK market, gas supplies from a Russian field may be cancelled, China’s demand may rise by 20 per cent a year and Asian gas may cost 60 per cent more than UK supplies.

Mr Buchanan said: “There is no new nuclear, no new clean coal, no new carbon capture this side of 2020. So we will lean on gas, and gas will account for about 60 per cent of our power station needs instead of 30 per cent today, and in order to get hold of that gas we’re going to have to go shopping round the world.”

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 we cannot afford to be complacent.”

He added: “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.”