The UK’s energy regulator has warned its industry that it must act now if it wants to ensure energy supplies meet UK demands.

In its Project Discovery report released yesterday, Ofgem warned that current energy prices are not sustainable if the nation wants to work towards climate change targets set in light of carbon trading and the Copenhagen accord, and secure energy supplies for future.

It said studies have shown that prices could rise by the middle of the decade if action was not taken immediately and suggested major market changes, including more stringent obligations for providers to help meet projected goals.

Ofgem chief executive Alistair Buchanan said Britain could turn the current outlook around if action was taken now to reform the industry, making it both more affordable for consumers and supportive of climate change initiatives, including renewable energy.

“We do not advocate change lightly, but all the facts point to the need for reforms now to provide resilient supply security,” Buchanan said.

Ofgem has unlocked £200bn of funds for the development of a new market structure for the UK power industry, which if adopted it says, will target issues such as policy reforms and renewable obligations, which would force providers to consider renewable options as well as access to back-up power supplies.

If it goes ahead, the plan will drastically change the way the industry, which has moved away from regulation for decades, runs.

“The overwhelming majority of responses to Ofgem’s October consultation show that there is an increasing consensus that leaving the present system of market arrangements and other incentives unchanged is not an option,” Buchanan said.

Buchanan said the global financial crisis, worldwide demand for investment in energy, tough emissions targets set by the EU and Britain’s aging power stations and its increasing reliance on gas imports all mean reform has to be considered now, for investment and funds to be raised to secure energy for the future.

By Penny Jones.