The sweeping changes, which could force up the unit cost of electricity by as much as 47 per cent, are to meet EU targets on energy generated by nuclear power and wind farms.
Analysts said annual costs for UK consumers could rise from £493 to £655 in the next two decades, compounding the financial misery facing many families.
The warning comes days after British Gas announced an 18 per cent increase in gas prices for nine million home owners from August, with a 16 per cent hike in electricity bills.
Tomorrow, the Government will set out its plans for massive reform of the electricity market, in a long-awaited White Paper.
Energy Secretary Chris Huhne is expected to say that energy companies should get a fixed price for electricity generated from renewable sources so the UK has a chance of hitting Âambitious EU targets. But it is British consumers who will be footing the bill, to the tune of Âseveral million pounds.
The new measures will artificially raise electricity prices to give companies a guaranteed return for building new power plants. Dr Michael Porritt and Laura Platchkov, experts from the University of Cambridge and the Energy Policy Research Group, said: “If [the subsidy] level is...set too high, they risk inducing windfall profits for generators and unnecessarily high consumer prices.”
They added: “A 47 per cent increase in electricity unit costs, envisaged under the electricity market reform, would send UK electricity prices towards being the highest in the European Union.”
But Mr Huhne said yesterday: “We are not going to have the highest prices in Europe. That’s absolute nonsense. The reality is that we have some of the lowest energy prices and we can get them even lower. We’ve got to get off that oil and gas fuel hook.”
Meanwhile, fears were growing that Britain’s big six suppliers could use a roll-out of smart meter technology to “miss-sell” gas and electricity.
Some 53 million gas and electricity meters are to be replaced with devices that display the cost of energy being used.
But the consumer group Which? warned: “It would be very wrong if energy companies used the installation of smart meters as a way to get a foot in the door for their salespeople.”
And Zoe McLeod, of Consumer Focus, said: “The smart meter roll-out will give energy suppliers unprecedented access to almost every home in the country.”
But Christine McGourty of Energy UK, which represents energy suppliers, said: “Any sales activities will be conducted in a fair, transparent, appropriate and professional manner.
“This will allow interested customers to understand and sign up to new services at the visit if they want to do so, while at the same time protecting them from unwanted sales.”