Electricity bills ‘may have to rise’ to stop the lights going out

Average electricity bills could rise by a quarter if Britain’s power industry is forced to pay more for wholesale supplies in order to avoid power cuts, City experts have predicted. Such an increase would push the amount spent on electricity by a typical household from £550 a year to £690.

In a hard-hitting research note that accuses the Government of playing “Russian Roulette” with Britain’s energy policy, Peter Atherton and Guillaume Redgwell of Liberum Capital said there was a “real danger” that the power market might get concerned about security of supply and pay more to guarantee future supplies.

“This is what happened in the gas market in the mid 2000s when the decline of the North Sea output exceeded expectations before new import capacity was commissioned,” the analysts said. “We saw winter gas prices spike by more than 50pc until the concerns were eased when the new pipeline to Norway and two LNG [liquid natural gas] terminals were completed.

In a section headed “Prices will Rise Ahead of the Lights Going Out”, they added: “A similar move on power prices could easily push winter season wholesale prices up to the £70 to £80 per megawatt-hour range, compared with £53 today. Such a move would be likely to increase retail electricity prices up by some 15pc to 25pc.”

They strongly criticised the Government’s approach. In a section headed “UK Energy Policy is not Plausible”, the analysts said: “In our view successive governments have grossly underestimated the engineering, financial and economic challenges posed by the drive to decarbonise the electricity sector by 2030.