Looking at pricing trends alone, consumers could expect energy bills to reach £4185 by 2020. This strips out the cost of investment, but factors in inflation and volatility in the wholesale markets, as seen by suppliers over the last five years.
Since 2004, global demand for energy and volatility in wholesale prices have contributed to a 114% increase in household energy prices, including a 42% or £381 increase last year. The overall effect has been to see household energy bills more than doubling from £580 in 2004 to £1243 today.
Volatility is expected to continue to be a dominant theme in the energy market going forward. Although the current world-wide recession is dampening demand for energy, the recession is due to end by 2011/12, when global demand for energy can be expected to start climbing again.
Power hungry economies, such as China and India, will be returning to strength, resulting in an upward pressure on wholesale energy prices. At the same time, North Sea oil will start to run out adding greater pressure on the market. Wholesale energy prices account for around 50% of a household bill so continuing volatility will have an impact on the amount consumers will pay.
As well as upward pressure on household energy bills, there will be downward pressure too. The Government’s drive to make British households more energy efficient will start to pay dividends. But, instead of reducing bills it will serve to counterbalance other factors pushing energy usage up, such as the growth in single person households, Britain’s ageing population and growing reliance on electrical gadgets.
Ann Robinson, Director of Consumer Policy at uSwitch.com, said: "This is a wake-up call for us all. The £5000 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 just 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."
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