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A big week for energy – but we need radical changes

Pound coin on gas hob

It’s been a big week in the world of energy, and its only Thursday. On Tuesday the Big Six were up in front of the Energy Select Committee, and today Ed Davey gave his Annual Energy Statement…

…and most importantly of all, we launched our ‘Cut them down, George’ campaign!

20,000 people have already signed our petition calling on George Osborne to take action to cut your energy bill. And with so many people worried about whether they’ll be able to pay their energy bills this winter, it’s important he heeds our call.

Big Six grilled by MPs

Tuesday’s appearance of energy executives at the Energy Select Committee did nothing to allay concerns that the energy market is in dire need of reform. The Big Six claim that they’re scrupulously fair with their charges, but the fact of the matter is, we just don’t know.

We’re being asked to take all of this on trust. And trust in energy suppliers is notoriously low – our research shows that this industry has the faith of an ever-dwindling proportion of the general public.

Ed Davey’s energy reforms

Today in parliament the energy secretary Ed Davey told his fellow MPs that he has been busy ‘taking on the Big Six with the stick of competition’. On the evidence of the price hikes we’ve seen from the Big Six, that stick is looking more like a twig. He committed to substantially reducing the amount of time it takes to switch suppliers, from five weeks down to one, and then further still. Too little, too late springs to mind.

Davey also charged Ofgem and other regulators with carrying out an assessment of the state of competition in the energy sector. The sound of the stable doors closing after the horse had bolted was deafening. Simply asking the regulator to do its job is hardly the radical action this market needs.

We think the Big Six needs to be cut down to size, with the Chancellor taking steps to ensure that energy companies’ generation and supply businesses are separated. Furthermore, we think the Government can take immediate action to cut the charges levied on our energy bills. Will you join us in asking George to cut them down?

Do you trust energy companies to act in your best interest?

No (97%, 2,139 Votes)

Don't know (2%, 45 Votes)

Yes (1%, 30 Votes)

Total Voters: 2,214

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Comments
Profile photo of malcolm r
Member

We need to know the facts about our energy bills.
How has the wholesale gas price changed over the last couple of years, and what are the forward prices being used to calculate tariffs?
Why have the transmission charges increased by 10% and who approves this?
Should the green levies and subsidies for the fuel poor be part of the energy bill or general taxation, and how much are they?
Is 5% an acceptable profit and, indeed, is it true or does it stem from creative accounting practice?
Totally separating generation and gas production into separate companies with quite separate accounts is good in principle but open to manipulation.
Surely some organisation can provide this information so that we can objectively see what we should be fairly paying for our energy. Signing a petition without the facts is surely a bit premature?

Profile photo of oliver s
Member

I couldn’t agree with you more Malcolm. I think Which? are behaving as badly as a populist tabloid with this kind of campaign. We need hard detailed facts and, furthermore, it needs a proper proposal on who should pay for the green initiatives that apparently cost so much.
The impact of fracking on prices in the USA has been dramatic and yet the green lobby are up in arms about it. What could fracking reserves do to supply and pricing here?

Simply telling the Government to bring prices down is straight out of Ed Milliband’s speak. No plans, no costings, no facts.

Some of the BIG 6 energy company responses were quite reasonable. You cannot expect prices to come down whilst paying for expensive green energy and also guaranteeing supply.
Prices NEVER went down when the whole industry was nationalised.

Member
Derek Turner says:
2 November 2013

hi folks
Not quite what you are talking about but still needs addressing STANDING CHARGES
What’s the point of spending all this money on insulation condensing boilers also teaching us to save energy be it gas or electric in our homes and so cut our bill
all to be cancelled out by outrageous standing charges That are quickly adjusted to counterbalanced any savings we make
So my message is quite simple first you at which should take this matter up and of course our Government leaders stop waffling about and actually do something now to ease this winters bills

Profile photo of Patrick Taylor
Member

” The government says that with increasing “self-consumption”, the income for conventional energy systems will decrease, but grid maintenance will cost the same.

“If I produce my own energy, but am connected to the grid, having the backup in case my production fails, I have to contribute to the cost of the entire system,” says Energy Secretary Alberto Nadal.

The government is hoping the energy reform will settle a debt of 26bn euros (£22bn; $35bn), which has built up over years as a result of regulating energy costs and prices. ”
http://www.bbc.co.uk/news/business-24272061

So the Spanish government thinks people DO need to pay for grid access even if they use little or no power. So you are going to have to pay to be connected !! Gosh ! How wrong is that!

And apparently if as a Government you manipulate the market you end up with debts that at some stage need to be paid.

Profile photo of JohndeRivaz
Member

Seems perfectly reasonable to me. It’s like buying insurance. If you don’t want to pay, have a stand alone system with batteries or a diesel CHP generator for dull windless days. If the heat from the generator feeds a heat pump, then the system is very cheap indeed to run.

Of course as long as grid connected companies have to pay for energy, the solution is to have excess capacity, so the exported electricity pays for the grid back up. This does put the process back in the economic system and in some legislatures subject to taxation, but in others consumers can have meters that read backwards, so days of export can balance out days of import.

PV seems to be subject to a Moore’s Law. This will mean a time will come when it is the cheapest option. In addition, recent research has suggested a battery technology with the power to weight ratio of petrol.
http://phys.org/news/2013-10-nanotechnology-boost-next-generation-batteries.html
Not sure what it will cost, but this could change things again. There could be a future where only heavy industry is connected to an electricity grid. Everyone else will get their own energy from the environment.

Profile photo of Patrick Taylor
Member

Its nice to see someone else reading Phys.org : )

I think in due course it may well be that technology allows for distributed micro-generation and it is just feasible it will occur before I die. There is an Italian company quoted on AIM – ACTA that even now is selling commercial solar to hydrogen power units to run devices such as transmitter towers and scooters.

Hydrogen generation is the basis for much research as electricity will never be the optimal solution for many requirements. And of course where industrial amounts of electricity are required a grid system will be needed so that data centres, smelting, and malls and offices can function.

Divorcing the public from the connection between supply and distribution costs, and generation costs of electricity does no one any favours in the transparency stakes. That there is a standing charge for connection common to all tariffs would provide the greatest transparency but there seems to be a feeling from some quarters that hiding it within a single unit price is preferable.

Profile photo of JohndeRivaz
Member

The problem with hydrogen is the safety overhead. To make it as safe as diesel oil one has to add cost and weight, although metal hydrides may offer a solution. Another possibility is capturing water vapour and carbon dioxide from the air and using solar energy to make a hydrocarbon fuel by a physical process other than by growing and harvesting something. But this requires reliable and strong sunshine.

Profile photo of malcolm r
Member

Ofgem have made a response to the Annual Energy statement. This is the link:
https://www.ofgem.gov.uk/ofgem-publications/84215/improvingthetransparencyofenergycompanyprofits.pdf
It seems to me that the transparency of profits it looks for relies heavily on two things:1. The companies’ own accounts – can we rely on these not to be creative? and 2. an auditor – I don’t think they have a great reputation for independence.
Why does Ofgem not set itself up to audit these accounts – do we not have capable civil servants to examine them?
Maybe Ofgem should use data to produce a “model company” that takes in wholesale gas prices, transmission costs, green levies, and includes benchmark costs for operations and profit so there can be an objective agreed range for gas and electricity kWh costs. It can use data from suppliers and generators other than UK to help establish sensible cost data. We might at least then feel more confident about the tariffs actually being charged. Or is Ofgem not competent to really assess what we should be paying?

Profile photo of willowe
Member

I agree with Which? the Big Six “need to be cut down to size, with …… energy companies’ generation and supply businesses … separated.”

The man from Ovo was a good representative of the smaller companies, saying he couldn’t see how the Big Six could justify their prices. Surely the regulator should have had input from him and the other small companies and used it to question the monopolists.

I read in the FT that energy costs are 16% of poor peoples’ income; but only 3% of the top peoples’ income. The prospect of poorer families going short of either food or heat should be pushing the government to do something.

Profile photo of malcolm r
Member

willowe, I have recently changed from one npower tariff to another, in view of their increase. I checked OVO and their gas price was 25% higher than npPower. So I’m not sure that the smaller companies are any better – certainly not on my experience. Not at all straightforward, is it?

Profile photo of wavechange
Member

I have not been following the energy debates, but I thought that companies are now supposed to inform customers if they could save money by switching to another tariff.

Profile photo of wavechange
Member

Sorry, Malcolm. I realise that this is not related to your discussion, but I thought you would know the answer.

Profile photo of ChrisGloucester
Member

Not sure how you found OVO 25% more expensive than nPower Malcolm. Admittedly I did a dual fuel comparison rather than gas only but on two sites I found that for my place OVO and nPower were currently about the same?
Spark were actually the cheapest but I’ve heard reports that their customer service is poor and error rate high.

But as I already buy from OVO and find that they behave themselves quite well, and because I enjoy interest on my modest credit balance with them I don’t think I’ll be changing for now. The potential saving was not significant.

I would agree though that buying energy at what is really the best price is not as straight forward as it could be or should be.

And overall far too expensive from whoever you buy from.
And increasing in price at a very alarming rate, from whoever you buy from.

Something needs to be done or we’ll all really suffer, many are in my view suffering very badly and very unnecessarily already.

Profile photo of malcolm r
Member

Chris, I was comparing unit costs for gas only on a like-for-like fixed price deal when I was looking at switching. OVO were then 25% more expensive. To be fair, their standing charge was lower but even when I include this, on my usage OVO were still 10% more. I think it is important to look at gas and electricity separately – a dual-fuel deal from one supplier’s tariff may not be the best value.

Profile photo of malcolm r
Member

wavechange, they will be required to inform you, yes, when Ofgem’s proposals come into force (Nov or Dec I think) However the options for me on npower were to stick with my current tariff, which has gone up 15%, or to go to their standard tariff, or fixed tariffs to 2015 or 2017. The best tariff depends on your view on future price increases – is it worth paying more initially in the expectation of continuing prce rises around 10%? This is a judgement, not an obvious best answer. So not easy for your supplier to give the best option. expect it will be the same with other suppliers now the number of tariffs is greatly reduced.
I found that my best (I hope!) solution was to stick with npower but a mixture of tariffs – electricity on my present variable tariff, but gas on their tariff fixed to 2015. I still get the discounts. However this mix and match option does not come up automatically on the Switch with Which tool – only dual fuel packages on the same tariff are shown (not surprisingly). So it is worth looking at gas and electricity quite separately as well – your best bet might be two different suppliers, or two different tariffs from the same supplier. The switch tool does allow you to select dual fuel, and gas and electricity separately to check this out manually.

Profile photo of wavechange
Member

Thanks Malcolm. I knew you would know the answer and it certainly had not occurred to me that buying electricity and gas from different suppliers might be a better option.

I have the ability but perhaps not the motivation to keep a close watch on energy costs. I just feel very sorry for elderly and disadvantaged people who may be struggling to pay their bills. I wholeheartedly agree with your comments concerning the need to understand the costs in supplying us with energy but is equally important that all fuel users get decent value for money.

Member
Charlie says:
1 November 2013

My worry, and the reason I haven’t signed your ‘Cut them down, George’ campaign is that one method for reducing energy bills in the short term would be to ‘roll back’ on ‘green taxes’. These are meant to save us money in the long term. I fear that energy policy in this country has been the subject to damaging short-termism for far too long already.

And a quick note on the vote that you’re running. I don’t trust energy companies to act in my best interest. But then they are private companies and are interested, primarily, in generating profit. Can we expect them to put the customer first without a strong regulatory body to ensure they do?

Profile photo of willowe
Member

Hi MalcolmR. I think the Ovo man was saying the increases didn’t make sense given the wholesale prices.
http://www.telegraph.co.uk/finance/business-news-markets-live/10410831/Business-news-and-markets-as-it-happened-Tuesday-October-29-2013.html
But his prices being higher than nPower in your case is a bit unfortunate !
He may still have a point though. As you say it isn’t straightforward.

Profile photo of malcolm r
Member

willowe, I agree there does not seem to be any transparency in wholesale gas prices (nor electricity). I don’t see why there should not be. OVO suggested gas has not increased recently, Ofgem suggested it was 1.7% higher (but another suggestion was 10% higher). A parliamentary briefing paper I looked at shows it appears to have increased by around 10-12% over the last couple of years. It is complicated by the fact that energy companies buy a couple of years ahead to avoid big fluctuations. What Ofgem should find out is what the actual wholesale prices have been and what the forward prices used are so a real judgement can be made of the increase, if any, they make to what you and I pay. Is that beyond them?

Member

I have recently changed my fixed tariff supplier. I was unable to obtain a price/unit only. All quoted prices included a price/day as well as a price/unit. When queried I was told(by several suppliers) that this was Government policy ‘to simplify the tariffs’. What nonsense. It means that when I go on holiday I still have to pay the supplier. I know that this system also applies to other service suppliers, but it is wrong. Why can’t we just pay for what we use?

Profile photo of malcolm r
Member

Ron, Ofgem’s proposals are that dual-price tariffs (2 different unit rates) are abolished and tariffs should now be a single unit rate plus a daily standing charge (which may be zero). This means suppliers can offer a price per unit with no other charge. I had a cursory look and found the following offer some tariffs with no (i.e. zero) standing charge:
Electricity – npower price fic Apr 2015, Ebico, Utilita
Gas – Utility Warehouse, Ebico, Ecotricity, Utilita.
By no means exhaustive.
However, beware. The unit charges will be higher than other tariffs, so are usually only atrractive to quite low energy users. You need to look at deals with and without standing charges against your energy usage to find the cheapest deal.
There is an argument that there are certain costs that are fixed whether you are at home using power or not. Presumably you still want your fridge-freezer to operate when you are on holiday – so still need a supply service. The suppliers admin costs, meter reading, distribution equipment, green levies, subsidies to the poor, at least in part need to be paid however much energy (or little) you use. Personally, I would prefer everything that is not directly related to the supply of energy stripped out of my bill. Social charges, subsidies, green levies should, I think, be part of general taxation.

Member
Wislon says:
1 November 2013

Whilst I fully understand the logic of switching I am concerned about the repairs to supply lines and associated equipment. Having been without electricity for 8 days after the 1987 storms, the recent storm shows again the potential problems of overhead cables.
At present I am supplied by Southern Electric who also are responsible for the cables etc; will they be as interested in maintaining and repairing them if they are not the supplier ?

Member
Leonardo says:
1 November 2013

I cannot understand why the politicians complain about lack of competition in the energy supply sector. It was competition that, many years ago, lead one supplier to offer a two tier system, rather than a standing charge. As I switch my boiler off in the summer, I jumped at the chance to reduce my bill. It was competition that lead suppliers to keep coming up with other tariffs, like fixed rates, to try to gain an advantage over competitors. Now we want to reduce the number of tariffs, and adopt a standing charge as standard. It might be easier to chose between suppliers, but I can only think my bills will go up as a result.
There are also moves afoot to split generation from supply. Surely any company that can produce a product, and sell it, must be able to do so cheaper than competitors who are selling someone else’s product. Even if they don’t pass on all their savings to their customers, they will make a bit more profit, but of course that’s a dirty word! Don’t people realise that their pension funds rely on companies making profits?
So we are urged to switch suppliers. But who to? Your possible new supplier will inevitably be putting up their rates too, and it’s this aspect that puts a lot of people off moving.
One simple answer would be to limit price rises to say a 40 day window, possibly just once a year. At least then one could wait for the end of the round of price changes, and switch with the knowledge that the rate is fixed for the next 10 months or so.

Member
Derek Turner says:
2 November 2013

Hi folks
Yet another dig at our clowns running the the country last week we have one in particular saying its all our fault we have high energy bills for not switching
Are they that stupid not to realize that the six energy companies have fixed the energy prices by buying up all the small companies who have to buy from them anyway and therefor successfully any killed opposition
derek turner

Profile photo of JohndeRivaz
Member

It ought to be possible to have a web site run by the power distribution company where people can click on check boxes and switch their energy supplier as often as they like. In fact someone could develop an application that optimises each customer’s value for money every hour. It would be a sort of automatic price comparison site.

However I suspect that the result would be little different from having a government owned monopoly supplying energy. The only difference would be that there would be no politicians and executives getting fat on the proceeds, or that the competition may improve the efficiency of the competing industries supplying the power.

I did see on another site a comment that there is a Moore’s Law affecting photovoltaic panels, which suggests that buying electricity by installing these panels will eventually be cheaper than buying it from a centralised source. When/if that happens, it will be more like a traditional marketplace.

Profile photo of Patrick Taylor
Member

See my new post third from top on the Spanish Governments idea that being connected to the grid even if you generate your own power means that you are responsible for its upkeep. Fair point.

Rather like my road tax and duty on petrol contributes to roads all over the UK even if I never use them.

Profile photo of Figgerty
Member

During the summer I spent most of the time away from home with a relative who was very ill. I returned home about every 10 days to check all was ok and to keep housekeeping up to date. When I received my energy bill, the total was £25 and some pence. Only just over £3 was actual energy and the remaining £22 was standing charge. This could have been a bill for an elderly person who tried their best to reduce their consumption or had been in hospital for part of the billing period. Standing charges are unsuitable for low users as it does not matter how little energy you use you still have to pay a whopping charge.

I changed my energy provider in February 2013 to a fixed price tariff that does not change until June next year. This was the cheapest tariff for me at that time I switched. The annual saving was supposed to be £80.

Profile photo of malcolm r
Member

Figgerty, the politicians have just proposed the solution to your problem – and for those who leave home for different times. Assuming normally your best tariff includes a standing charge, when you can change tariffs in 24 hours as proposed, do that to a unit-only tariff just before you leave home, and change back upon your return. Then no standing charge whilst you are away! Should even work for long weekends!

Profile photo of Figgerty
Member

I would turn into a swivel eyed loon trying to keep track of which supplier was supplying me and for what period.

Profile photo of Patrick Taylor
Member

“He committed to substantially reducing the amount of time it takes to switch suppliers, from five weeks down to one, and then further still. Too little, too late springs to mind.”

I have to admit to be being completely boggled by Which?’s Josh Green. I can only assume a large number of people have never worked in any industry where record keeping and finance are involved as the concept is ludicrous. I am not saying it is impossible just ludicrous.

IF people are going to be able to change swiftly then a complete infrastructure needs to be built and staffed. Who is going to pay for it? Let me guess …consumers? Now if after a week another company comes up with a better product I can change again — or can I? What are the restrictions on this super-fast switching routine. Can I only change once a year or as many times as I like? This is an arrant piece of lets not bother with details lets just say something populist and worry about it later.

Can you conceive of the problems that can arise from tens of thousands of people all wishing to change at the same time from one company to another. And if even if this accomplished with due respect to security from malicious persons, fraud, and paying off the current provider what is going to happen to the company that has lost tens of thousands of customers because it was the first to go in the price announcements.? Run at a loss, reduce staffing? reduce investment? so it can be cheaper next year … or next month.

Chaos.

Which? should be asking for the detail behind these politico schemes and if there are none or serious flaws in practice protecting us.

Profile photo of malcolm r
Member

The idea of switching in 24 hours is just more political nonsense – just like a 20 month price freeze. About time these politicians forgot about points scoring and really tackled the fundamental problem of minimising energy prices and properly regulating them. I expect energy companies to make a fair profit – but let’s have transparency so we know it is fair.
Incidentally, I have just switched and have a 14 day cooling off period. So switching in a week makes it a three week changeover – or are the politicians going to abolish the cooling off period. You just have to wonder whether any of this has been thought through. It’s time engineers ran the country – at least they think logically (and scientists, doctors and a few others……)

Profile photo of Figgerty
Member

I have no wish to switch energy provider any more frequently than once a year. But I should be able to make them keep to the price they used to lure me to switch for that year. I don’t switch insurer or breakdown service or many other similar services within a year so why should I be expected to switch energy provider. I am happy for a new provider to take a couple of weeks to make the switch but taking five weeks seems excessive, unless the company is able to justify it.

Profile photo of malcolm r
Member

Figgerty, the best way to avoid the need for switching more than annually is to go for a fixed-price deal; plenty around. However, I suggest you make sure there is no exit penalty in case you change your mind.
I thought about a 4 year fixed price deal (to 2017). However, you of course pay substantially more initially per unit – and can you guess better than the energy company whether you will win overall? My money would be on the energy company to win. So I stuck with an 18 month deal. You may decide to change from a 4 year deal before it ends – energy prices don’t rise as fast as expected (could that happen?), you come across a better deal, you move house… But in the early years you will have paid much more than necessary for your energy, so a big loss to you (but a big gain to the energy supplier). So not for me.

Profile photo of Figgerty
Member

I agree. When I switched in Feb 2012 I had the choice of a fixed price tariff ending in June 2014 or one ending in 2017. The first saved me £80 per annum and the second was costing £13 more. I chose the first one as I hoped the energy companies would have a competitive price by the end of the fixed price period and I was protected for two winters with the first option. Of course if I could have foreseen a 10% hike then I may have made a different decision. Perhaps the switching websites should allow us to factor in a % increase.