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Will energy bills go up or down – who should we believe?

Energy bills are going to be £280 higher in 2020, cries the media. No, they’ll be £94 cheaper, shouts Chris Huhne. So who’s right? What will our energy bills look like in ten years time? And who’s telling the truth?

Now, I don’t have a crystal ball. And I can’t forensically dissect the government’s statement last week, which led to the £94 saving claim.

My point is this – what we heard from Chris Huhne about energy prices were assumptions. And pretty big assumptions at that.

So we need to unpack them and see whether the £94 saving looks right. Otherwise we’ll get a massive shock if our bills continue to go in the opposite direction.

Government policies and your energy bills

Let’s start with a bit of context. Last week’s announcement was Chris Huhne’s second ‘Annual Energy Statement’. This aims to give us a better understanding of how government policies impact our energy bills.

This includes the cost of obligations placed on energy companies to hit carbon and fuel poverty targets, subsidies for renewables and the investment in new technologies, like smart meters.

The government has totted up the cost of each initiative and reckon they’ll add £280 onto our bills in 2020. That’s where the media’s figure comes from. But the government says that by introducing these policies, we’ll use much less energy and end up saving £373 a year. So there’s your approximate £94 saving…

However, this is where the assumptions start. Let’s kick off with smart meters. The government assumes rolling them out will add £3 to our bills. But, over the summer we saw the estimated cost of smart meters increase from £11.3bn to £11.7bn. What will stop it from going up further?

Still, the government reckons smart meters will save us £37 a year. This assumes that once you have a smart meter, you’ll change your behaviour and use less energy.

Yet, when we speak to Which? members with smart meters, they tell us they’re generally uninterested in using them to become more energy efficient. So will they really deliver the energy savings assumed by the government?

Will you really pay less in 2020?

You could go through similar exercises with the other government policies. It claims that the new Energy Company Obligation (ECO) will add £75 to our bills, but their consultation document says it could cost more than twice that amount.

Meanwhile, it assumes the Green Deal and ECO will save us £53 a year. But this is based on an estimate of how many people will take up the Green Deal. Something we’re sceptical about.

The biggest savings are estimated to come from the EU’s energy efficiency standards on new products – like lighting and TVs. This is expected to save us £158 a year. But study the small print and you’ll find phrases like:

  • ‘The savings from Products Policy are more uncertain over later years.’
  • ‘In order to realise savings […] there will often be upfront financial costs of buying the more efficient products. The analysis does not consider these costs.’

Now, I’m not saying the government has got its figures or assumptions wrong. Its policies may help us significantly reduce our energy use and cut our bills – but what if they don’t?

Claims about future prices are important, because we know people don’t trust energy companies and they’re also angry about price rises. So the government must do everything it can to make sure its policies don’t run out of control or over budget. And that energy efficiency schemes, like the Green Deal, really make sense for consumers.

This means that the costs and benefits of all of these initiatives have to be as transparent as possible and reported on regularly. Without such scrutiny, people simply won’t believe that energy prices are going to go down.

Comments
Member

It’s about time consumers paid a fair and reasonable price for their power based on their usage and not to pay for silly government schemes. And we need a proper regulator that will force energy companies to lower prices as quickly and by as much when the wholesale price falls.

Any1 else amazed how energy companies can get away with saying we’ve bought in bulk and now the wholesale price has dropped we can’t do anything, yet they never seem to be able to buy in bulk before the price rises.

Member

Whilst we need to guard against being ripped off by energy companies long term rising energy prices are going to be a fact of life.

Member

“Yet, when we speak to Which? members with smart meters, they tell us they’re generally uninterested in using them to become more energy efficient.”
Possibly because Which? members are not a typical cross-section of the population; they wouldnt be members if they werent already interested in consumer issues and saving money so probably have already reduced their energy consumption by traditional methods – follow energy-saving advice and checking the normal meter !

Smart energy meters don’t themselves save energy ( they have actually cost a lot of energy to produce and install) they are just a means of monitoring energy use and still require the householder to make changes to their energy usage if they are to save money

Member
Malcolm Fry says:
22 December 2011

I am a retired energy consultant. Happy to take bets on the average household energy bill being more than £2020, by the year 2020

Member

Bah! Humbug. Are you trying to spoil our Christmas, Malcolm?

I hope your wrong, but….

Member
Geomac says:
18 January 2012

You could well be correct, Malcolm. My electricity bill already has a 12% component attributable to “government obligation to the environment” (written on my bill) and this represents £100/year already. It’s time the government realised how they are ruining our economy and forcing high energy businesses out of the UK – stell making has gone, aluminium smelting has gone and many others are squealing at the rising energy costs. This undoubtedly reduces UK carbon emissions but does nothing for worldwide emissions as steel manufacture has emigrated to India and aluminium manufacture to Russia – not to mention the numerous manufacturing businesses which have migrated to China!!

Member
Malcolm Fry says:
18 January 2012

That is correct. At least, in the short term, anything we do has minimal effect, while the developing nations continue to expand energy use. Frankly though, we could do more, if not for the fact that those who protest our energy usage, are the exact same people who protest, when anyone wants to do anything to produce energy in other ways.
Fortunately, I tend to think the situation will tend to correct itself, as rising carbon based energy costs force global action, even, being 60, if I’m not around to see it.

Member
Geomac says:
18 January 2012

I just followed Huhne’s blog on the Which debate and he tried to tell me that his policies would result in our energy costs decreasing by 2020. What he didn’t explain is that his/DECC’s prediction is that he assumes that we will be using less energy (50% less) by 2020 and this more than negates/offsets his green policy increases. How deceptive is that???

Member

“Will energy bills go up or down – who should we believe?”

Does it matter? If they do, simply switch.