Belco faces difficult times ahead with the price of oil soaring and a growing demand from consumers - that is according to the latest equity research report by Lines Overseas Management.

The report, which was published by Jeremy Dyck, a research analyst at LOM, claims that the utilities company will need to invest $500 million in infrastructure over the next ten years to meet Bermuda's increasing energy requirements.

And with crude oil trading at more than $140 per barrel this month, and Bermudians staring at 50 percent year-on-year rises in their fuel surcharges, LOM projects sustained energy conservation by residential customers between seven to 10 percent during the rest of the year.

But LOM believes Belco's current market capitalisation of $216 million, combined with total assets of $340 million and shareholder's equity of $300 million, allied to the newly-formed Energy Ministry will help to relieve the burden of planning, approval and funding of future energy infrastructure projects.

Meanwhile LOM reckons the "demand destruction" effect will be offset marginally by an increase in the number of residents and higher commercial demand, as new office buildings and tourism projects plug into the grid.

Mr. Dyck said: "We have great confidence both in Belco's strategic management and the company's ability to deliver safe and reliable electricity.

"However, the current state of energy markets - with crude continuing to trade over $125 per barrel, combined with ongoing growth in Bermudian consumers, will make for a difficult near-term operating environment.

"Belco has some interesting ideas and initiatives related to renewable energy, but these are several years away from fruition and, in the interim, the company will be reliant on conventional forms of electricity production such as heavy oil and natural gas."

LOM forsees it being difficult for Belco to pass on the "substantial" price tag of its new infrastructure onto its already burdened consumers, while the price increases equate to about $5 million in supplementary annual revenue and the remainder of approximately $100 million in funds needed for near-term plant expansion.

It views Belco's discussion of "trendy" renewable energy options as bound to elicit some "warm fuzzy" feelings, but said that, at present, this dialogue appeared to be little more than "reactionary corporate rhetoric".

"While we hold ample confidence in the company's renewable energy initiatives in the future, Belco has decided to pursue a near-term plan centred around the expansion of its existing conventional facilities - replete with a continued reliance on fossil fuels and consumer prices subject to the vagaries of current energy markets," the report read.

Grant Hopkins, of LOM's corporate finance department, believes that Belco has an "attractive dividend and valuation" relative to most utility companies.

"However, the pass-through of high fuel costs to customers will likely continue to hurt average residential consumption because of conservation efforts at home," he said.

"On the positive side, Belco's healthy balance sheet will help fund near-term capacity expansion programmes while in the long-run renewable energy initiatives will help keep Bermuda 'green'."