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Energy prices 'to rise 25 per cent over decade'

Consumers can expect to see the price of domestic gas and electricity increase by as much as 25 per cent over the coming decade, power company bosses have predicted.

The rise - equivalent to £275 on top of the £1,100 average annual energy bill, at today's prices - will be driven not only by rises in wholesale prices but by volatile international markets and the cost of investing in "green" energy, they told MPs.

Five of the big six power companies were quizzed by the Commons Energy Committee today, and all agreed that prices rises were in the pipeline.

British Gas managing director Phil Bentley told the committee: "If you look forward to 2020, we are all expecting to see higher wholesale prices and higher transmission and distribution charges across the industry, as we are having to make larger investments in the industry.

"We would expect bills, and I think (regulators) Ofgem have said they expect to see average energy bills, up by 15 per cent-25 per cent by that time."

The chief executive of E.ON UK, Paul Golby told the committee: "Unfortunately, the inevitable direction of wholesale energy prices is upwards, so in terms of tariffs I think we will see continuing rises through the next decade.

"The only real way we can combat that is through energy efficiency measures, helping customers keep warm but use less energy."

The committee heard that prices were also being driven up by non-energy costs - such as contributions towards the cost of energy efficiency measures - which Alistair Philips-Davies of Scottish and Southern Energy said had added 20 per cent to bills since 2005.

"Our estimate to 2015 is that there will be a 14 per cent-15 per cent rise in the non-energy costs," added Philips-Davies. "I think that will probably continue as we invest more in energy efficiency."

Npower's director of regulation Guy Johnson said that the scale of future price hikes depended largely on a review of the energy market currently being carried out, and the extent to which its conclusions are driven by the goals of cutting carbon emissions and maintaining security of supply, rather than affordability.

"I think it is important that we try to create through that electricity market review a competitive framework in which lower carbon technologies are developed based on their levelised costs and economic criteria, in order that we minimise the increases over the next 10 years or so," he said.

Paul Spence, director of strategy and regulation for EDF Energy, said: "The critical thing is to make sure we add the right lowest-cost energy to the system as we invest over the next decade and the electricity market reform is the key to making that happen in the most affordable way."

Responding to the companies' comments, Consumer Focus head of energy Audrey Gallacher said: "It is up to the energy industry to show that any price rises are fair.

"At the moment, consumers have next to no confidence that they are paying a reasonable price for their energy. It is not clear whether the energy market is as competitive as it should be and more transparency is needed on wholesale costs, retail prices and company profit margins.

"In a world where energy bills are rising, it must be easy for customers to find the best tariff, switch easily and be confident they are paying a fair price."

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