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Will domestic energy bills increase by £200 a year by 2020?

A new report claims households are set to see their energy bills jump by the end of the decade

The latest round of energy price hikes has barely had time to take effect, yet already one of the Big Six suppliers has told consumers that further increases are inevitable - and they're coming in the not-too-distant future.

In a report released earlier this month, npower warned that - by the end of the decade - households face paying £200 a year extra for their gas and electricity. The company says green policies and the poor efficiency rating of Britain's housing are to blame.

If the claims are correct, some households could see their annual bills heading towards the £1,500 mark. It's a scenario the supplier says can be avoided if homes waste less energy, but ultimately this relies on people's ability to make improvements to their properties.

Number crunching

To substantiate its claims, npower has defined the areas where its own costs will increase, reasoning that consumers' prices will have to go up as a result.

According to the supplier, if households don't improve their energy efficiency in the coming years then the average bill will jump from £1,128 to £1,330. Here's how:

  • Policy and regulation costs will increase from £164 to £308
  • Supplier costs look set to rise from £218 to £243
  • The cost of transporting energy will jump from £295 to £314
  • Commodity and production costs are expected to rise from £451 to £465

If these predictions are correct then a typical UK home will see its bills rise by £200 over the rest of the decade, with npower increasing its profits by £10 per customer. But just how accurate are the figures?

Scare tactics?

The supplier says green policies and the poor efficiency rating of Britain's housing mean that energy bills will continue to rise

Despite npower's attempts to justify its claims, Ofgem has moved to accuse the company of producing a misleading report - arguing that it has overestimated distribution costs and used incorrect data to arrive at its conclusions.

The regulator argues that transportation expenses are set to remain largely flat, rising by around £5 rather than the £20 estimated by npower. Yet even if this is taken into account, the supplier's forecasts would still see annual bills rise by £185 over the course of the next six years.

It makes for glum reading - and with Which? revealing that 84% of consumers see energy prices as their top worry, it's clear that many people's finances could be pushed to breaking point if bills do rise as npower predicts.

Price dodging

Despite the report, the fact remains that the supplier has made its predictions based on current circumstances - and the figures are still being debated. There are many variables that could change and have a dramatic impact on bills between now and 2020, and a £200 rise is in no way a certainty.

With the government seemingly willing to review the impact green subsides have on domestic energy costs and Labour claiming that, if elected, it will impose a freeze on prices, it's clear that things could change substantially over the course of the next year - let alone by 2020.

Yet rather than wait to see what develops in the market, the best way to avoid the full impact of any price rises is to switch. Cheaper deals are available that can lower your bills and even help protect you from further increases, so taking advantage of such offers now helps provide a degree of certainty in an ever-changing landscape.  

Image credit: Images Money