Energy squeeze to hit bills - Ofgem

Households have been braced for yet more energy bill hikes after regulator Ofgem warned Britain was heading for a "horrendous" supply crunch.

Alistair Buchanan, its outgoing chief executive, said the UK was facing an "uncomfortable" squeeze in energy reserves over the next three years as ageing power plants close and the country is forced to import gas at a time of tightening global supply.

With coal and oil-fired power stations closing earlier than expected to meet environmental targets, around 10% of current generation stock will go by April. And within three years, the reserve margin of generation will fall from around 15% to below 5%.

Mr Buchanan said it was inevitable that prices will rise as supply struggles to keep up with demand. "We've got to go shopping around the world for our gas," he said. "It's just horrendous serendipity that just as we have a squeeze on our power and turn to gas, the global markets have a squeeze."

He called on the Government to deliver on its energy bill, which is going through Parliament and is designed to encourage investment in low-carbon generation, while saying consumers will have to better manage their bills through energy efficiency.

Energy providers will also be watched closely by the regulator to ensure they do not "take advantage" of the situation to try to raise prices by more than necessary, said Mr Buchanan.

Which? executive director Richard Lloyd said consumers will be "alarmed" at Ofgem's price warnings. He said: "The Government should ensure consumers are properly protected from unaffordable misery generated by today's broken energy market, and give people confidence that they are not writing the energy industry a blank cheque for years to come."

Angela Knight, chief executive of Energy UK, the industry's trade body, said the authorities should "get on with exploring the options for UK shale gas reserves to help energy security and focus on the affordability of energy to households and the competitiveness of British industry".

The Government said it was acting to prevent any possible "looming energy gap". A spokesman for the Department of Energy and Climate Change said: "Our energy system faces significant challenges over coming years, including the closure of around one-fifth of our ageing power stations, so, as Ofgem highlights, we cannot afford to be complacent and may face a looming energy gap.

"The reforms we are making to the electricity market through the Energy Bill and through our gas generation strategy are aimed at plugging this gap in order to keep the lights on."