Wave goodbye to cheap energy rates

By Jonathan Morris, August 11, 2011

With the news continuing to be dominated by allegations over phone hacking and our minds turning to thoughts of sun-drenched beaches and fun-filled family holidays, we could be forgiven for having overlooked the recent decision by British Gas to increase the cost of gas by 18 per cent and electricity by 16 per cent. Scottish Power has also announced large price rises.

With inflation still running above four per cent, we will certainly feel the impact of these higher fuel prices on our disposable income, especially as the nights start to draw in and we move into the winter months.

Yet this could be just the tip of the iceberg. According to figures released last week by the Department of Energy and Climate Change, energy consumption in the UK increased by 4.6 per cent between 2009 and 2010.

Further, as the Secretary of State, Chris Huhne, has recently pointed out, we have less control over its cost with imported fossil fuels currently providing around one-third of our energy and this figure set to rise to 50 per cent in less than 15 years.

To compound the problem, according to the electricity and gas regulator Ofgem, we need to invest £200 billion in energy infrastructure by 2020, of which the government estimates £110 billion will be required to replace existing power plants coming to the end of their useful lives.

We need to invest £200 billion in energy infrastructure by 2020. This represents a serious challenge

At a time of severe public expenditure cuts, to say the least, this represents a very significant challenge. In response, the government has announced a series of measures, including the introduction of a new system of long-term supply contracts in the hope that this will encourage companies to build new power plants. Time will tell if this alone will have the desired result.

One possible solution might lie with alternative energy but this currently represents just under seven per cent of our electricity generation. It is difficult to see this providing a quick enough fix.

It appears much more likely that this huge energy investment will require regular and substantial price rises until we can find ways to reduce our overall energy consumption.

The days of cheap energy look to be well and truly over.

Jonathan Morris is a partner at the international law firm Berwin Leighton Paisner LLP

Last updated: 11:17am, August 11 2011