'Energy bills could reach up to pounds 2,000' Drastic action need to shore up supplies.

Byline: Kelly Macnamara

HOUSEHOLD gas and electricity bills could reach pounds 2,000 without drastic action to shore up the UK's energy supply, Ofgem warned yesterday.

The watchdog said the country could have to spend as much as pounds 200bn to secure supply and meet environmental targets as it faces a capacity shortfall from soon-to-expire power stations.

Ofgem's review of Britain's energy market says household bills will rise between 14% and 25% from 2009 levels by 2020 in four scenarios which weigh up different levels of investment on infrastructure and the pace of the economic recovery.

In its worst-case scenario - a strong resurgence in global economies along with missed renewable and carbon targets - the watchdog warned that consumer bills could peak at more than 60% higher by 2016 before falling back.

Consumer group Which? criticised the level of investment in energy infrastructure to date. Fiona Cochrane, the group's energy campaigner, said: "The way consecutive governments have passed the buck on this issue is tantamount to negligence. By ignoring security of supply for so long, they've saddled consumers with what could be a colossal bill. We can't allow a situation where we have to choose between paying a king's ransom for our energy or face the lights going out."

The average household is currently paying pounds 804 a year on gas and pounds 443 a year on electricity, a total of pounds 1,247 and this would rise to peak at pounds 1995 a year if the gloomiest prediction proved accurate.

The cheapest of Ofgem's scenarios - a slow economic recovery coupled with global green stimulus packages - would see annual bills hitting pounds 1421 by 2020.

Households have already seen average annual energy bills almost double since 2003 as wholesale prices have soared, although there has been a marginal decrease since last year's peak.

The Institution of Civil Engineers said there needed to be new thinking on the way infrastructure projects are funded.

Director general Tom Foulkes said: "Today's energy network is ageing and doesn't have capacity to meet current or future demands. However, those involved in industry and government have known this for some time. The real question is, where is the money going to come from to fix the problem?" CHANGE NEEDED AT REGULATOR THE energy regulator is in the process of fundamentally re-evaluating its role as traditional "market forces" become less effective at ensuring supply and investment. Volatile markets, ageing power plants and environmental targets have altered the landscape in which Ofgem works, while the financial crisis has called into question the ability and motivation of firms to invest on a large enough scale.

The watchdog said it had launched its review of the energy market - called Project Discovery - to investigate whether a new policy framework is required.