OFGEM WARNS HOUSEHOLDS COULD FACE 25% INCREASE TO BILLS IN 10 YEARS TIME!

In a report out 03.02.2010, Ofgem has given its biggest indication yet that bills will rise dramatically over the next decade. It has announced that bills could rise by up to 25% in the next ten years due to factors such as the global financial crisis, tough environmental targets and increasing gas import dependency. Based on today’s average bill size of £1,239, this will mean bills could hit £1,549 in ten year’s time[1].

However, uSwitch.com, the independent price comparison and switching service, is warning that Ofgem could be underestimating the increases. It says that ongoing pricing trends coupled with required investment could see household energy bills hit as high as £4,733 a year by 2020[2], nearly four times higher than they are today. The additional cost of investment alone is expected to add £548 a year onto household bills[2].

Ann Robinson, Director of Consumer Policy at uSwitch, says: “Today’s report is one of many recent announcements from Ofgem, which have gradually lifted the lid on what household energy bills are expected to look like in the future. When you add the pieces together it’s a big wake-up call and raises serious concerns about the ongoing affordability of our energy. While investment in the sector is crucial, there can be no doubt that it will have a big impact on household energy bills and this has to be explained to consumers now so that they can start taking action to protect themselves in the future.

"The £5,000 a year energy bill may seem like an outside possibility, but we have to remember that energy bills doubled in the last five years alone and that the huge investment needed to keep the lights on in Britain will alone add £548 a year onto our bills. The fact is we are entering a new era of high cost energy and households will have to adapt their behaviour accordingly by paying the lowest possible price for their energy and reducing the amount they use.”

£233.5 billion investment – what are the key costs?[2]
Renewable energy generation - £112.5 billion
Power plants (including gas-fired, coal-fired and nuclear) - £52.1 billion
Upgrading pipes, networks and gas storage - £39.8 billion
Roll-out of smart metering - £13.4 billion
Carbon emissions reduction target - £15.7 billion

Total = £233.5 billion

Reference: uSwitch.com

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1. Based on a medium user consuming 3,300 kWh electricity and 20,500 kWh gas, on a standard plan, paying on receipt of bill with bill sizes averaged across all regions. In 2004, the average annual dual fuel bill was £580. At present it is £1,239.

2. Based on a medium user consuming 3,300 kWh electricity and 20,500 kWh gas, on a standard plan, paying on receipt of bill with bill sizes averaged across all regions. The £4,733 figure takes into account pricing trends over the last 5 years and investment costs required by the energy industry. According to Ernst & Young, reported in The Times on Monday 25th May, 2009 in an article written by Robin Pagnamenta, these investment costs total £233.5 billion and imply a total bill of £8,977 or £598 a year for the next 15 years for every household. However, Ernst & Young factored in £112.5 billion for renewable generation and £15.7 billion of Carbon Emission Reduction Targets (CERT) investment. Consumers are already contributing for these items on their bills: according to Ofgem, in 2006/07, the Renewable Obligation cost each domestic consumer about £10 a year plus, under the CERT scheme we are all paying an extra £19 a year on gas and £18 on electricity to provide funding to support energy efficiency measures. Therefore, to reflect these costs across all domestic energy accounts we have added £548 a year onto household energy bills instead of the £598 a year predicted by Ernst & Young.