Ofgem says it’s going to cost the UK £200 billion to secure energy supplies and meet carbon targets.

The figure was revealed after Ofgem’s report that they claim is their most comprehensive review of Britain’s energy supplies yet.

Labelled Project Discovery, the initial report outlines the challenges for Britain’s energy industry and concludes that if the targets are to be met, then customers could face potential price rises to fund this investment.

The report focussed on the challenges facing Britain’s gas and electricity supplies, and identified that the main cause of concern is the country’s exposure to a volatile global gas market and power stations nearing the end of their life.

As part of the report, Ofgem has drawn up a total of four energy scenarios applicable for the next ten to 15 years. And in each of the four scenarios there are reductions in carbon emissions of between 12% and 43% (from 2005 levels) and increases in energy infrastructure investment of between £95 billion and £200 billion.

The first scenario is called Green Transition. This one involves rapid economic recovery and a significant expansion in investment in green measures. Targets for domestic renewables are met and energy efficiency measures are effective. Also, UK gas demand falls, but electricity demand increases due to greater use of electric vehicles and heat pumps. This causes quite a hike on domestic consumer bills, with an increase of 23% by 2020.

The next scenario is Green Stimulus and this one is based on a slow recovery from the recession and restricted availability of finance. As a result, world Governments implement green stimulus packages to achieve environmental goals and boost economic activities. High carbon prices and government policies support investment in renewables, nuclear, and carbon capture and storage. Consumer bill impact is less at 14% by 2020.

Third up is the Dash for Energy scenario and plays out the theory that global economies bounce back strongly, but security of supply concerns outweigh the emphasis on environmental targets. This means that the UK’s renewables targets and the Government’s carbon budgets are missed. The result is competition between countries for energy resources, which in turn leads to tight gas supplies and high fuel prices. What’s worse is that planning and supply chain constraints means that new nuclear power stations can’t become operational before 2020. This leads to a doomsday scenario of an incredible 60% rise in domestic consumer bills by 2016, before eventually falling back.

The final scenario is called Slow Growth. This plays out the scene of a continuing recession which results in gas and electricity infrastructure being considerably lower than before the credit crunch. Once again, nuclear power cannot save the day, because incentives to rush to the atom are reduced because of low gas and electricity prices. And the result, an increased dependence on imported gas for new gas-fired power stations. And domestic consumer bills get clobbered by 22% by 2020.

Alistair Buchanan, Ofgem chief executive, said:
“Our scenarios suggest that Britain faces a tough challenge in maintaining secure supplies whilst at the same time meeting its climate change targets. However, there is still time to act. Ofgem will be putting forward proposals in the New Year based on today’s consultation to ensure that Britain’s energy industry can meet the challenges ahead.

“These are big challenges. Consumers are already enduring high energy prices,” said Mr Buchanan. “This is why we are consulting with consumer and environmental groups, the academic community and industry to ensure any policy proposals we make are grounded on the best evidence available. Early action can avoid hasty and expensive measures later.”

Guest Article by Neil Camp

Regulator Ofgem is forcing energy companies to provide their customers with an annual statement and explanation of energy prices.

Under the new rules just announced by energy regulator Ofgem, they are prepared to take the suppliers to the Competition Commission if they fail to agree to the proposals.

But even before the regulations come into force, consumer groups are reminding consumers that they can do much more themselves to keep costs down.

First amongst the recommendations is to buy a new boiler with the latest technology. Unless people have a boiler less than three years old, a replacement is one of the best ways of saving money on heating bills. People should strive for a condensing boiler, which is over 90% efficient, compared to many older models which struggle to get a 60% rating. Research has shown that almost one in three boilers have never been serviced (risking death from carbon monoxide poisoning, as well as a bigger bill). And with the heating and hot water accounting for some 60% of the average home’s energy usage, a modern boiler should not be overlooked as the best way of saving money. Boilers should also be fitted with the latest controls and the rooms should be equipped with the latest thermostats, meaning that temperature control can be properly regulated throughout the property.

Second on the advice front is to get the best tariff. Loyalty to one supplier is now old hat and savvy customers move around in an attempt to get the best deals possible. Evenso, over 30% of households will never have switched energy suppliers. And the big suppliers will usually change their tariffs at least twice a year, meaning that one good deal might not last more than six months. Customers are advised to consult comparison websites and understand that the best deals are from those companies that offer dual fuel tariffs (electricity and gas from the same company).

Thirdly, don’t waste the heat you produce, or the electricity you buy. If you haven’t got it already, consider loft insulation, cavity wall insulation and double glazing. One, or all three, can make dramatic difference to heating bills. Don’t leave electrical items on stand-by overnight. Switching such items off completely can nearly save you 10% of your electricity every year.

Fourthly, both read and understand your meter and your bill. Suppliers do make mistakes and so nothing should be taken for granted. Claim refunds if you think a mistake has been made. Also, by watching your consumption, it will more easily help your understanding of how much your house actually costs to heat and operate.

Fifthly, when it comes to your paying, opt for Direct Debit, or paperless billing. Currently, most suppliers offer discounts for both methods, mainly because it helps their cashflow and money management. But take advantage whilst you can.

So, don’t wait for Ofgem to force the energy companies into helping you see what you are actually paying for. Be aware now of where your precious money is going.

Guest Article by Neil Camp

• 4 million customers have no access to best offers
• Prepayment meters cost £118 more than direct debit
  
• Quarterly cash or cheque payments cost £80 more than direct debit

Announcing the findings of a seven-month investigation into Britain’s energy market, the energy industry regulator, Ofgem, has found no evidence of a ‘cartel’ amongst the big six suppliers, but it warns gas and electricity suppliers to stop charging customers different prices for paying by direct debit or pre-payment meters.

The report highlighted 4 million households that were £55 a year worse off because they couldn’t take advantage of the most competitive offers; households using pre-payment meters being charged an average of £118 more than direct debit customers; and households paying quarterly by cash or cheque being charged an average of £80 more than those who used direct debit.

According to Ofgem, although it found that the market works well for most consumers, many of the most vulnerable customers, including pensioners and low income households, were less likely to be able to make informed choices about tariffs under the current system. Customers not connected to the mains gas grid were losing out too.

The regulator proposes wide-ranging reforms which include a requirement for companies to help all consumers access the best deals and more transparency to show the link between the wholesale price of energy and the price charged to customers. It also wants to stimulate new competition by making it easier and more attractive for smaller suppliers to break into the market, currently dominated by six companies – British Gas, ScottishPower, Scottish & Southern Energy, EDF Energy, Eon and Npower.

Consumers have already been hit by two hefty price hikes this year and energy suppliers continue to blame soaring prices in the global wholesale gas and electricity markets. The recent Which? report on energy suppliers also reveals widespread dissatisfaction amongst customers, the lowest of all industries.

The Ofgem report is therefore likely to receive a luke-warm reception as many will feel disappointed that it doesn’t go far enough to impose its recommendations.

Mini-Post by Alan Potts