Your front page report of the Government’s first annual energy statement rightly said that my department’s central estimate is that overall gas and electricity bills for households will rise by about 1 per cent - or £13 - in 2020, compared to what bills would otherwise be without our policies. This is made up of a big increase in the cost of energy combined with a big reduction in the use of energy due to our planned Green Deal for homes, smart meters and other energy saving measures. The cost of heating our homes is immensely wasteful because of poor insulation. For example, we use more energy to heat our homes than does Sweden, where winters are longer and colder.
However, your report does not make clear that this forecast is inevitably founded on a view of what is likely to happen to the costs of fossil fuels. It is based on an oil price in 2020 of $80 a barrel, which is barely higher than yesterday’s market price of $78 a barrel. If oil prices were instead to rise to $100 a barrel, as projected by the International Energy Agency, then the net effect would be that British households break even. If the oil price were to rise to $108 a barrel, as the United States administration forecasts, British households would save money on our bills. My department, indeed, calculates a high fossil fuel scenario of $150 a barrel in which average household bills would be 5 per cent lower due to our policies to encourage energy saving.
In such an uncertain world, where the costs and risks of extracting oil and gas are rising as we have seen in the Gulf of Mexico, oil and gas prices could not only be high but also very volatile, putting immense strain on household finances. Moreover, declining North Sea oil and gas means that we are steadily becoming more dependent on imports. The only sound energy policy for our nation is one that moves as rapidly as possible to close the looming energy gap between demand and supply both by saving wasteful demand and by boosting secure supply.
Secretary of State for Energy and Climate Change
3 Whitehall Place SW1A 2AW