/ Home & Energy

Ed Miliband’s energy price promise

Ice cubes with flame

Ed Miliband has promised to freeze gas and electricity prices for 20 months if Labour wins the next election. It sounds like a bold move, but will it solve the underlying problems in the energy market?

Ed Miliband’s promises at the Labour Party Conference will give hope to the millions worrying about how they will heat their home this winter.

Consistently, we find that rising energy prices is one of the top worries for hard-pressed consumers, with some people even having to dip in to their savings to cover ever spiralling household bills.

Freezing prices to 2017 is a bold move and we look forward to seeing the detail of how this will work. However, the market itself is broken and temporary price promises won’t solve the underlying problem.

With rumours of yet more inflation busting energy bill hikes to come this winter, and the average annual bill standing at a staggering £1,300, it’s no wonder people are questioning whether the price they pay is a fair one.

Radical action is needed.

Ring-fence energy companies

Which? has been calling for a ring-fence of the Big Six so it was encouraging to hear Labour rubber stamping this.

While energy companies blame price rises on an increase in wholesale costs, which make up 60% of bills, or on government policies, while at the same time announcing huge profits; public trust in this industry is shamefully low. Which? research shows less than a quarter of us trust their gas or electricity suppliers.

The truth is that it is almost impossible to establish whether the price we’re paying for our energy is a fair one. For many years a lack of transparency has meant we could not establish whether price hikes are always a fair reflection of wholesale costs or confirm whether the way the market operates ensures that retail prices are being kept in check by competition between suppliers. You’re being left to take it on good faith alone that your interests are being well served.

Lack of openness in the energy market

Part of the problem is that the largest six energy suppliers in the UK are ‘vertically integrated’, supplying 98% of the domestic market and generating 70% of electricity – very little electricity has to be sold on the ‘open’ wholesale markets. Most of what other trading there is also happens behind closed doors, with estimates suggesting relatively little goes through the ‘open’ wholesale markets.

This lack of openness and external scrutiny means it is almost impossible for anyone looking in from the outside to obtain robust price information.

The very structure of the largest companies, the low levels of trading and competition on the open market and the closed nature of trading and price setting could be adversely impacting on the competitiveness of the market and on prices.

As it stands, the energy market needs fixing.

The regulator has taken steps to make changes, but we don’t think these go far enough. It’s time for radical action from all political parties setting out how to build trust and ultimately improve competition.

Comments
Guest
richard says:
25 September 2013

I really don’t care – I want a Prime Minister on my side – NOT as Cameron is – on the side of the rich punishing the poor

Guest

He could achieve this by simply re-nationalising them, instead forcing energy companies to freeze prices which might be a good headline but will lead them to a) raise prices before the freeze or b) raise them after to help recover they’re perceived lose in profits.

Maybe he should remove the green taxes from our bills, that would remove any need for action from the energy companies.

And all talk of simplifying tariffs means is that all the cheaper deals will go,

Re-nationalising is looking better and better, although we’d end up paying for it one way or another.

Guest

Many people foresee problems with this proposal, especially people representing the energy suppliers. There is fear of an investment freeze and even as a result power outages.Now of course to prevent that any future Labour Government could re-nationalise, could guarantee investment and could also freeze prices for as long as they like.

We consumers could also control events to some degree, through the ballot box.

Guest

Once again its time to bash the energy companies over the head !!!! Yes prices are high but isnt everything else ?? Lets talk about how the goverment screw us over everyday with the price of fuel. The actual cost of petrol or diesel is probably some where in the reigon of 40% of what we actually pay at the pump, yes thats it 60% of my hard earnt money goes to the goverment every time i fill up, ive already been taxed on the money i earn but no, lets give a bit more away !! what about the price of food !!?? public transport !!?? cigarettes/alcohol !!?? quite simply what people dont understand is this, Energy companies have to buy there energy at a given price on the ooen market and pay for it straight away. We then use it and then when we get the bill complain its too expensive !! if you dont want to pay for it then dont use it !! A huge proportion of what we pay goes back and gets reinvested in renewable energy for the future when we run out of coal and gas. Energy companies do make profit yes, would you run a business that didnt ? since when was profit a dirty word ? I dont think people actually realise that after all the energy had been paid for, stafc, overhead costs etc and then huge amounts of money is put into the future for creating renewable energy the profit isnt that great. Quite simply if you dont like it, dont use it. Go and pick on something else for a change and change the record

Guest

You really cant have private energy companies and control their pricing when world prices are a significant element in their costs.
I agree that this self-generation doesnt help transparency.
However the news report I saw said that the UK has some of the cheapest gas and electricity prices in Europe – someone must be doing something right then ?

Are their profits really “huge” in real terms i.e. % of turnover; its no good looking at profits of any company in absolute terms only although it does make good headlines.

Guest

Indeed , and much to my surprise I see that the UK is not the most expensive place for electricity and gas.

http://www.energy.eu/

Just shows how unreliable respected organisations can be when the EU figures show in May 2013 that we are only mid-table in domestic electricity costs:

Euro per kilowatt
Bulgaria 0.08795
Romania 0.10695
Estonia 0.11066
Croatia 0.11325
Lithuania 0.1255
Latvia 0.13942
Greece 0.14073
France 0.14466
Poland 0.14618
Czech Republic 0.15071
Hungary 0.15613
Slovenia 0.15659
Finland 0.15718
Luxembourg 0.16736
Malta 0.16986
United Kingdom 0.17078
Slovakia 0.17322
Spain 0.18926
Netherlands 0.19323
Austria 0.20147
Portugal 0.2031
Sweden 0.20361
Ireland 0.22518
Belgium 0.22566
Italy 0.2314
Germany 0.26527
Cyprus 0.27249
Denmark 0.29525

Guest

Which? can you take the EU to task for misrepresenting? Or am I completely misunderstanding the figures.?

Country € per kWh Natural Gas
Romania 0.02717
Lithuania 0.04419
United Kingdom 0.0445
Latvia 0.04667
Estonia 0.047
Poland 0.04822
Slovakia 0.04902
Bulgaria 0.05061
Luxembourg 0.05637
France 0.05706
Hungary 0.05752
Ireland 0.05827
Czech Republic 0.05934
Germany 0.06139
Spain 0.06141
Belgium 0.06362
Austria 0.06691
Portugal 0.06841
Slovenia 0.06976
Netherlands 0.07374
Italy 0.07932
Denmark 0.10805
Sweden 0.11523
Croatia 0.3715

Guest

I would agree that the UK is not the most expensive place for Gas or Electricity. But I don’t quite see the significance of that fact. Especially when those Gas and Electricity cost comparisons do not take into account local general living costs or perhaps express those costs as a proportion of average local wages.
Also there is no mention of the international rate of price increase or level of supplier profit, or for that matter where the profit goes, the state, shareholders or towards reinvestment.

Without all these other factors a simple unit cost comparison is pretty meaningless.

Anyway finding out the UK is not the most expensive place to buy energy on a unit cost basis at least certainly won’t change my opinion that the UK energy market is very badly broken and we the consumers are paying through the nose for that.

Guest

EU stats again I am afraid. Meant to show the comparative cost against household consumption for each country..
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Comparative_price_levels_of_consumer_goods_and_services

This is the actual data

I realise this may not change your mind, but at least information is available.

I also think action is required but at the generation end of the business and establishing a proper market but also making sure a proper strategic plan is in place. My father-in-law worked on the power generation side of the business so I appreciate the tales he tells me about the practicalities, and also the waste under the CEGB.

Guest

Chris, that the UK has one of the cheaper unit rates is significant when you look at the many countries that pay more than us with similar or lower wages. It is necessary to put costs in perspective. However, if you would like to provide figures that show differently, opinions may change.
I do consider a restructuring of the energy supply industry would be worthwhile, as would a degree of transparency that is appropriate, considering that some confidentiality is always necessary for commercial organisations. This is an area for a regulator, not for meddling politicians intent on promoting their image.

Guest

The first thought that occurred to me on hearing this news was that the energy companies now had around twenty months [till May 2015] to get prices where they wanted them be in early 2017. It is virtually inconceivable that this will not happen to a greater or lesser extent. This would not only hit us all directly in the wallets but leave a nasty hike in the rate of inflation overhanging the next few years at least. Persistent inflation is a greater evil than high energy costs. Those who think a higher rate of inflation will bring an uplift in their wages and pensions are right, of course, in money terms – but the money’s spending power will be reduced. Perhaps there is some sophisticated and mischievous electioneering calculation going on in the inner depths of this policy announcement.

My second thought was that, if this only applies to energy prices for residential supplies, tariffs for the manufacturing, service and retail sectors, public services, transport, and other non-domestic users will be at risk of significant price rises to compensate for the money lost elsewhere. This will feed directly into the cost of living and stoke up wage demands again with the consequent compounding effect.

Third, I thought: Bang! will go the decent tariffs – the dual-fuel discounts, the on-line billing rewards, and so on. The smart-meter roll-out will probably stall in the traps.

The energy companies have unfortunately reacted with predictable “shock – horror – lights out!” rhetoric but there is a potential risk of an investment cavity opening up before us, despite what the Leader of the Opposition has to say. Wise energy suppliers will heed his words and make sure that, by the time of the next election, they have treated their customers responsibly, developed a fairer, more competitive market, and so neutralised the issue that it no longer has paramount electoral appeal. Once all the tub-thumping and grandstanding are over perhaps we can really sort out the problems with the energy market as Which? has recommended, without upsetting the, inflation rate, financial markets, and the UK economy; bringing more renewable energy on stream; and investing in energy reduction measures and conservation.

My ideal future is where we can be at ease over energy, not seeing it kicked around like a political football with scant thought for the consequences.

Guest

At least Ed Milliband is taking a stand at addressing our basic needs. Energy will always be in high demand, and Technology of any kind should be under scrutiny to keep the balance. Swapping Energy Suppliers and maybe holding prices down is a short term answer only.

Reduction of consumption using technology and changes to the way we do things , no matter how small the change, is the real answer, and using our intelligence to use the most successful renewables that doesn’t cost the earth!!!

There are many Communities already more than doing their bit. Spread the news on their achievements helping the aged, families, and spending their own money.

Guest
Archie McCallum says:
26 September 2013

Who controls the uk banks,its not the Ombudsman or Financial Services Authorities
I GOT RIPPED OF TO THE TUNE OF £135 FOR CLOSING A BANK ACCOUNT I HELD FOR 2 MONTHS.

Guest

I am kind of curious why, given the Eu figures, that the “British people” feel particularly disadvantaged when apparently we are better off than most Europeans. Is it that we use more? are also more careless in our usage? our houses are in the main not thermally efficient?.

We should address that. The UK could also look at the major problem of electricity – storage – and actually get started on some of the technologies touted.

I read about Denmark and their significant investment in wind power and I suspect that is reflected in their high electricity unit cost – almost 80% higher than the UK. However come a fuel shortage and wind power will look very clever. Let us hope that such an event does not occur until the UK has got itself sorted out. No which county deserves a thorium reactor ……

http://www.extremetech.com/extreme/160131-thorium-nuclear-reactor-trial-begins-could-provide-cleaner-safer-almost-waste-free-energy

Guest

Each of the main suppliers are the retail arm of a group of companies which include the generators.

Every time there is an increase the main part of the increase is said to be the wholesale cost of the energy. As the wholesale price is set at a level that cannot be tied back to individual consumer bills it is almost impossible to challenge it.

Separation of the generator and supplier parts of the chain is essential to prevent the existing practice of moving profits upstream to an unchallengable generator. The suppliers would be required to buy their energy from the market, not their own group company.

There may be some merit in capping the profits on domestic generation and taxing to fund the stupidly expensive green energy experiments or better yet to replace domestic consumer tax.

Guest

According to the Chief Executive of E.On, in his response to Ed Milliband, the company has already separated its supply and upstream businesses and already buys its energy on the open markets.He also says they are fair and reasonable in their pricing and and profit levels, and that their profit from supplying energy to customers’ homes is less than 5%. He moans about the cost of “the political programmes” under which “successive governments have collected taxes for different schemes through energy bills. . . . [which] has added extra pressure and is a factor in why bills have risen over a sustained period of time”.

He goes on to say “All politicians, from all sides, need to acknowledge that fact. At a stroke you could remove a large cost from energy bills simply by moving these costs to general taxation”. Yes, and at a stroke people without a mains supply of gas, or electricity, or both, would end up subsidising new sources of energy and novelty metering schemes for those that do! The minute the politicians start running the energy industry, the energy bosses think they should tell them how to run the country.

I am left wondering why Ed Milliband didn’t split the industry into suppliers and generators when he was the Energy Minister in the previous government.

Guest

One of the things I dislike most about all politicians is using a populist bandwagon to score cheap points. Particularly when the consequences, as here, have not been thought through.
Assume energy bills might otherwise increase by 8% in the years when the freeze is proposed – no doubt partly due to raw fuel cost and government green initiatives. This would add £100 – £2 a week – to an average energy bill.
What will happen to your average food and grocery bill for a family in those years – probably double that amount. Why not freeze food prices – twice as effective?
Your rail fairs always rise above inflation – why not freeze those – probable more than twice the saving.
How about housing costs – rent or mortgage – is he going to freeze those?
Instead of playing to the gallery, all politicians should be looking at genuine ways of reforming the energy market that will work longterm, not just 20 months. Separate electricity generation and gas production from distribution, and make the costings transparent, so it will be clear whether we a being “ripped off and how”. Check our costs against other EU countries to put them into perspective. Maybe tax excess profits, but remember profits include the money that these companies must invest in capital projects – just make these investments open and subject to scrutiny.
The remark in the introduction about “huge profits” is really an inflammatory comment from Which – you should know better, or provide the evidence to back it up. If a distribution company makes a genuine 5% profit on its business, that is not “huge”. If you know differently, please provide the facts.

Guest
Dalgetylad says:
26 September 2013

I agree in principle with all the comments posted to-date but the facts highlighted in the Which? review remain. It doesn’t matter whether we have the cheapest or most expensive energy in Europe, we are a country who has its own energy market where competition between suppliers is questionable and tariffs difficult to compare for a better deal.

Oh yes, dual fuel discounts, cash-back, direct debit discounts, online discounts, M&S Vouchers and any other incentives are fine. But for me, I would rather compare tariffs as I do fuel at filling stations and decide to take my business elsewhere. Now that type of single tier pricing would have the energy companies flapping and the individual or household would be in charge of what they pay.

As an example, our local filling station is most always 3p to 4p per litre dearer than a large supermarket about 6 miles away but, perhaps on false economy, I would always travel to the supermarket to fill up. This puts me in charge of what I pay and to whom I give my business.

Guest

Dalgety – Your comments about going to the supermarket for petrol remind me of the benefits of predatory pricing until you drive the competition from the area allowing one to become the only supplier. Very handy with a supermarket attached as then you can give discounts for x amount of purchases nailing both local shops and petrol stations.

I have always taken the view that monopolies/near-monopolies are ultimately bad for the consumer. Paying to keep a competitor in business may actually be a sensible strategy.

As to your journey you are incurring extra motoring costs/fuel wear and tear and fuel for 12 miles to save the headline 4p a litre. The AA running costs calculation suggests you are paying around 20p+ per mile for a cheapish car so the extra distance costs £2.40 plus your time. So unless you put in over 60 litres of fuel you have lost out.
http://www.theaa.com/resources/Documents/pdf/motoring-advice/running-costs/petrol2013.pdf

Guest

dieseltaylor, exactly right. This is one of the (several) fallacies in the single unit pricing campaign “like petrol/diesel prices”. To get the best fuel price for your car not only depends on the pump price, but, as you point out, the extra distance you must drive to achieve it. Whilst it may only cost 15-20p a mile in extra fuel, you can’t ignore the additional mileage-related running costs, such as tyres, brakes, servicing, nor, dare I say it, the extra contribution to pollution and global warming. Possibly then 40p a mile. My cheapest fuel – which may not be best quality – is 7 miles away, so costs an extra £5.20 at least to get there – need 170 litres to break even.

Guest

Ed Miliband’s proposal sounds like a typically socialist policy of controlling the market rather than the more sensible approach of enforcing competition within the market.

For example, look at what the European Commission did with roaming charges. They introduced price caps, which didn’t work, because each network just charged prices right up to the price cap. Finally they will be reintroducing competition in the roaming market which existed until 2001.

Fixing prices doesn’t work; genuine competition does work.

Guest

I read that Centrica is poised to leave the UK i f elected Labour brings in a energy price freeze. Well go along with your Bankster pals!

Cameron was to going to get tough on energy suppliers remember? nothing happened .
Cosy chats in the Palace of Westminster with politicians of whatever hue will not change a thing.

Powerful cartels run our Country,they have us by the short and curlies.

Guest

Labour Party’s ‘pledge’ of scrapping the Green Deal and its sister scheme, the Energy Companies Obligation.

I was interested to see how little comment this part got but found an industry comment from
John Sinfield, which shows vividly what happens when politicians chop and change.

***
“Without doubt, Green Deal and ECO are failing to deliver, having got off to an extremely slow and dismal start – but they can and should be made to work. “We urgently need clarity on Labour’s plans for a replacement scheme and transition, as a change to policy has the potential to lead to
further confusion in the market and risks making a bad situation a lot worse. If there
is no Green Deal and ECO, what vehicle will draw private sector money in? “Labour must accompany any announcements on changes to the schemes with an early intent to introduce demand drivers, such as a variable stamp duty. This will certainly stimulate demand now, rather than bring it to an absolute halt as people wait for a new election to act. Yes, Labour may risk supporting a coalition government policy, but it is the responsible thing to do if they want to support industry and help households to cut bills.

“Ultimately, having spent over three years developing these schemes, the energy efficiency industry desperately needs stability, as well as the reassurance of continuity and improvement.
“Now is the time to act to get existing homes fit for purpose, not deliberate further.”

*****

Green Deal is this policy:
“1. How the Green Deal works

You can make energy-saving improvements to your home or business without having to pay all the costs up front through the Green Deal.

Energy-saving improvements include:

insulation – eg loft or cavity wall insulation
heating
draught-proofing
double glazing
renewable energy technologies – eg solar panels or wind turbines”

Politicians have no skin in the game other than the desire to be elected and in power and are happy for any perceived populist message without the consideration that entire industries are basing plans , investments , and staff hiring on a future longer than the next election date.

As far as I concerned to maximise these programmes there needs to be some Parliamentary commitment to long term funding say 15 years which everyone can then plan on. Not a get in and out quick before the next change in Government.

Guest

Thanks Diesel for bring the Green Deal and ECO aspects to our attention – I had not noticed those pledges in all the media clatter. Whatever we might think of these schemes, the fact is that many people across industry and commerce are working on them, commissioning production, and raising funds. Look at the mess that arose with the scrapping of the Home Information Packs; it might have been a misconceived scheme but a lot of people had staked their future on it and it was never given a chance to prove its worth – just broken on the anvil of political whim. We are left with a rump in the form of Energy Performance Assessments that hardly anyone buying a house takes any notice of. Since they also point people towards the Green Deal I suppose they will also have to go if the Deal is scrapped rather than being made more useful.

Guest

It is pleasing to see agreement on the need to split generation and distribution. This is by far the most pragmatic action to add some transparency and price sensitivity to the current system. A centralised market where they are required to offer significant amounts of power would be a great start.

I am conscious that of course it is not totally simple as I am aware old power stations being decommissioned and new ones commissioned are long term items. Also different fuels make for different operating profiles where some are always on load, some are very inefficient if held on standby etc.

Overall it looks like in a modern country perhaps a central body needs to have an overview on the power mix and future requirements of the nation. Politicians are too short term, power companies have to consider profits , – do we need a CEGB function?

Guest

I’m not political, but I think George Osbourne got this right – achieving a better standard of living depends upon getting the economy right. A far more useful approach than artificially tinkering by freezing energy prices for a brief period to attract the voters.

Guest
Badger says:
2 October 2013

One of the tragedies of the current debate is the poor contribution that Which? have made. In a recent article they promised to tell me why prices had risen, but they didn’t. They waffled on about various “myths” about rising energy prices, interviewed the boss of some small energy company, and that was it. Pathetic! The authors even seem to believe the political cant about “market failure”, instead of asking themselves what happens when all supplier do (and have to) use broadly similar mixes of technology, pay broadly similar fuel prices, and have similar customer service and power distribution costs for a commodity product. Why would you expect prices to differ between suppliers? Fair enough, if some people don’t want to change to get better prices, that’s their call, but to claim that it’s all the fault of the suppliers is incredibly weak.

Here’s a challenge to the authors of the last Which report on energy prices, to redeem themselves from the last slipshod report: Compare 2003 with 2013, and tell me for an average bill what is the split between the following:

1) Primary energy costs (ie what it costs the companies to buy fuel, possibly splitting out the exchange rate effects of sterling from world prices, invariably in dollars)
2) Operating costs for power generation, distribution, and customer service
3) Company profits (you might want to reference that as percentage of assets employed to keep some perspective)
4) Government mandated “green” and social obligations, including feed in tarriffs
5) Government levies and taxes (so corporation taxes, climate change levies, carbon auctions, business rates, fuel duties, employer’s NI, North Sea gas duties).

I don’t know what the answer is, but my guess is that there’s a lot fewer people employed in the industry than there were, profits remain thin, primary fuel prices have rocketed, and government intervention has increased considerably.

Guest
billme says:
3 October 2013

An energy price freeze will not work, the companies will raise prices before or after and it is a wasted intervention. Instead the politicians should find ways to encourage competition through simplification of tariffs, removal of fixed charges etc.