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How much is green energy adding to your bills?

£10 notes as wind turbines

MPs have criticised the way energy companies communicate price rises with their customers, causing ‘deep mistrust’. Do you know what’s actually causing your energy bills to go up?

The report by the House of Commons’ Energy and Climate Change Committee added that energy companies were not being as competitive as they ought to be, and also called on the energy regulator Ofgem to ensure bills are made clearer.

The report backs up our findings – less than a quarter of people trust energy companies. The government and Ofgem must do more to rebuild this trust. Ultimately, people won’t feel confident that they’re paying a fair price for energy unless prices are simplified.

It’s also important that we can see exactly what we’re paying for – energy bills must be open, transparent and subject to robust scrutiny.

The cost of moving away from ‘dirty’ energy

This got me to thinking – what is it that’s pushing our energy bills up? By now the debates about profits and global gas price rises are well rehearsed, but I want to throw something else into the mix: the cost of weaning the UK off of carbon-intensive, or environmentally ‘dirty’ if you like, methods of generating electricity.

It’s not that I don’t agree that we need to find cleaner ways of generating electricity, I absolutely think we do, I just think we need to be honest and open about how we’re going to pay for it. The Committee’s report also criticised the levies on bills that fund environmental programmes, adding that it must be clearer as to what their bills are made up of.

Transparency, transparency, transparency

Over the past few years I’ve come to realise that there’s one watchword that needs to be said again and again in the debate about energy prices: transparency. We recently published a report about the challenge of ‘decarbonising’ the UK’s energy sector (PDF). One of the key recommendations was that the cost of this decarbonisation should be subject to the same levels of scrutiny as spending that comes directly from taxation. We want a regular and independent audit of how the money is being spent in the hope that better value for money will be the outcome.

Moreover, it should not be beyond the wit of energy companies to give a detailed breakdown of what we’re paying for on our energy bills. A bit more openness and transparency about what it is we’re paying them for would go some way to fixing the breakdown in trust that customers feel for energy companies.

Energy prices are at the top of the league table of peoples’ financial concerns, so I think we’re entitled to a bit more detail about those prices. Have you ever wondered what makes up your energy bill?

Comments
Profile photo of alfa
Member

How about most of our energy companies seem to be owned by foreigners who are ripping us off and making big profits out of us?

Profile photo of Steve Putman
Member

How about doing what I did a year or two ago, move to Co-operative Energy. Ethical, and no PLC shareholders except that YOU are then a shareholder! GO4IT.

Profile photo of malcolm r
Member

Steve, they don’t seem cheap. What do you get rebated as a shareholder?

Profile photo of Steve Putman
Member

All the major energy suppliers promise to be the cheapest but they have to pay a slice to their PLC shareholders so their customers end up forking out for that. Co-operative Energy don’t make false promises and do look after their mutual customer-shareholders, as described on their website here:- http://www.cooperativeenergy.coop/why-us/

Profile photo of malcolm r
Member

I’m looking for the best deal – annual bill. I don’t see why I should pay more to the Co-op just because they are a mutual, unless they return dividend that make it worthwhile. Although their website claims low carbon energy, as far as I know they don’t invest in energy production so must buy on the open market – if they buy from “sustainable” sources (maybe at extra cost) that reduces what sustainable sources can provide to other suppliers? I’d like to know more about the argument for buying from them.

Profile photo of malcolm r
Member

ofgem publish an energy bill breakdown for an average consumer under 6 categories – http://www.ofgem.gov.uk/Media/FactSheets/Documents1/household-bills.pdf
bewtween 58% and 67% being for fuel (Dec 2012) and 6-11% for environmental charges.
I believe it would be useful if these categories were shown as £ on each consumer’s bill so you could see how your supplier uses its income.
The green energy component comes from government committments and it is questionable how this is best paid for. As it, in principle, benefits everyone then it might be best if it came out of general taxation. However, since this would increase taxes – how popular would that be? – this is avoided by tacking it onto energy bills. Should we all pay in proportion to our bill – domestic, commercial and industrial users alike?
This green component is set to increase substantially. I would like to see how the government is investing this money. I am concerned about poor sources of renewable energy being heavily subsidised – on-shore wind farms, solar power, feed in tariffs. I would prefer to see research into potentially more reliable sources being looked at more urgently – e.g. tidal flow, tidal storage and possibly wave power, a huge resource that surrounds us and could provide a substantial part of our future electricity needs. We will always need gas, and its future seems much more assured now than it was.

Profile photo of oliver s
Member

I agree wholeheartedly with the sentiment that we need to see what renewable energy is being paid for. This country has a bizarre schizophrenia towards energy.The debate on fracking is a perfect illustration. We don’t want high prices and we don’t want new technology to provide cheaper energy! Doh!
The Severn barrage project is being treated like the Channel Tunnel. Must be private but why? We have a fantastic natural resource that is not being properly pursued

Member
retired says:
1 August 2013

I’m not convinced about the ‘global warming effect’ either – we could be paying out all this extra money for nothing. A relative of mine who is a scientist is not convinced – I trust his judgement rather than the government!

Profile photo of wavechange
Member

I am a scientist, and not convinced about global warming either. What cannot be disputed is that we are depleting our reserves of fossil fuels or that coal and oil are important raw materials for plastics, pharmaceuticals and man other everyday products we tend to take for granted.

I do not trust politicians to plan for the future.

Profile photo of John Ward
Member

I suppose the complexity of the different companies’ tariff structures makes it difficult to pin down the comparative components of our energy bills. The percentages Malcolm has quoted from the Ofgem illustration show the difference for environental charges between gas [5%] and electricity [11%] but within those values there is probably a broad spread according to the relevant tariff. The main objection to imposing the environmental charges on consumers [which according to Ofgem come to around £82 a year on an average bill] is that the charges are highly regressive, that is they bear disproportionately on the poorest in society and on those who use the least energy. If it is enshrined in government policy that only consumers [and not taxpayers at large] should meet the cost of these obligations, then there is a powerful case for saying that they should at least be loaded against those whose energy consumption is the least efficient; difficult, for that would penalise those who live in an old place that cannot be insulated or who live in an oversized property but cannot realistically relocate to more economical accommodation. The environmental charges also impinge more on those properties that have to heat with electricity because either they do not have mains gas or they cannot have storage tanks for oil or LPG. I do not know whether similar levies apply to the heating oil and LPG industries. Since virtually every property uses electricity to some extent – and because power generation makes the biggest contribution to carbon emissions and can potentially use alternatives and renewables – there is some merit in the environmental charges targetting the electricity industry more than other industries. Personally I would rather see the environmental charges absorbed into general taxation where it would remove another “complicator” from the debate over energy prices. Moreover, the current levy arrangements, with the money going round in a circle from the consumer to the Exchequer via the myriad energy companies [and getting skimmed by administration and control costs at each interchange], are not an efficient process [leaving aside for the moment the return of the money to the energy companies for investment in new plant etc]. It’s not even the most effective way of obscuring things if that is your purpose!

Member
BrianR says:
31 July 2013

It would be interesting to have comparisons of power prices between the UK and other western
European countries particularly where there are the same providers involved.

Profile photo of malcolm r
Member

Brian R – you can find them here, but these are average prices, not by provider. Nevertheless they make interesting reading. We might moan about our prices but, as I have pointed out before, we are by no means paying the highest prices.
This was my comment on a previous conversation:

An interesting (?) comparison of European energy prices can be found at&filetimestamp=20130523135053
A quick look shows the UK in 2012 was 16th out of 27 for electricity price (91% of the average price) and 12th for gas (81% of the average price).
However, what is more striking is the increase between 2010 and 2012 – UK electricity increased by 23% (only Cyprus and Latvia having larger increases) and gas by 38% (Spain only higher at 68%).
Hope I’ve got the numbers right – I’m sure thousands will check this fascinating topic. However we have to ask why we suffer increases so out of proportion with the rest, whilst being somewhat glad we don’t buy electricity in Denmark or Cyprus (66% more than we pay) or our gas in Sweden (120% more).

Profile photo of wavechange
Member

Thanks Malcolm. This makes fascinating reading.

I had assumed that our dependence on importing energy would make the UK relatively expensive, but that’s obviously not the case. Considering the number of factors that affect the cost of generating and distributing electricity and gas, I am surprised that the price differences between countries is not greater.

Profile photo of rosealee
Member

In response to the above comment,I think British people are charged more because simply we will pay. In some of the other countries if there had been such a rapid rise in prices the local citizens would have been out on the streets protesting. This appears not to be the British way ,which is a shame because venting your anger on line is not as effective.Government will never be really concerned as they are totally divorced from reality as they do not have to worry about paying bills. Millionaires tend not to fret about rising prices!

Member
Vince P says:
31 July 2013

There have been various references (above) to the increase in our bills caused by subsidies for ‘green’ generation, but I still don’t know how much I’m paying for this, and what is the basis of calculation. I use electricity and heating oil (no gas in my village). Are these both subject to these additional environmental charges? These charges should be separate ‘line items’ on bills – by agreement with the suppliers or by statute if they won’t provide this information voluntarily.

If these charges are (as suggested above) approaching £100 p.a. and set to rise over time, there seems to be little point in changing supplier for some minimal gain. Let’s campaign to get these charges into general taxation (and let the political parties take the flack – maybe then they will be less profligate with our money).

Profile photo of wavechange
Member

I disagree, Vince. At present, the charges are greater for those who use more energy, which if fair. If they are moved into taxation, we are likely to land up with heavy users being subsidised by those who use less energy, which is anything but fair.

I totally agree about transparency.

Profile photo of John Ward
Member

Mmmm . . . Tricky one this. A lot of people are below the threshold for direct taxation; they might prefer relief from environmental charges on their energy bills. And many other people are having to use more energy because they are at home all day, or have to maintain higher levels of heat, or have alarge family with lots of baths and washing. I believe it is the inefficient [rather than greater] use of energy that should be targetted for a levy but, as I suggested above, that has its complications too. Thank goodness we have sensible politicians in place to make wise decisions for us!!!

Profile photo of wavechange
Member

Sensible politicians? That sounds like a new oxymoron. 🙂

Profile photo of malcolm r
Member

wavechange, it has been said before – many who use more energy have no choice, for a variety of reasons. Why should you penalise them? I see no way to fund green energy intiatives that is fair to everyone – but general taxation would at least place the greater charge on those with more ability to pay, and it is an issue for the whole population, not just energy bill-payers. Nevertheless increasing taxes is not a task any government likes.

Profile photo of wavechange
Member

Malcolm

I am thinking of those people who have the smallest incomes and are literally having to choose between heating and eating. High consumers might have to save money by heating only part of their house, but that is not such a desperate situation. A standing charge has a much greater effect on those who are low consumers.

I am all for green energy, but not at any price and we do need to explore renewable resources that are more dependable than wind and solar point, as you have said.

Profile photo of malcolm r
Member

wavechange, this problem should be dealt with, but separately, not at the expense of other energy users. Examples are elsewhere – all electric homes, small homes incapable of being insulated, larger families etc. etc.
I have not suggested anywhere that everyone should pay a standing charge. On the contrary I have always suggested a choice – unit charge only, or unit plus standing charge. You have the choice of the most advantageous tariff for your particular circumstances.
It is simply not possible for one charging method to be fair and the other not. So we should not impose an artificial situation. We should address issues that will help all consumers.

Profile photo of wavechange
Member

Well, as I have said before, I am fully supportive of the Which? campaign for simple energy prices that can be compared as easily as the price of petrol.

I guess we have to agree to differ.

Profile photo of RaymondMullins
Member

This week I received both my quarterly gas & electric bills from BRITISH GAS. Without telling me BG have put me on a new tariff. They have not increased my kWh cost but have now added a STANDING CHARGE, something that I have never had before The bill’s say electric used this period £31.85 STANDING CHARGE £9.13. Gas used £22.81 STANDING CHARGE £13.96. So just like that BG have increased my charges by something like 50%. I emailed BG via their website complaining in no uncertain terms and telling I refuse to pay the standing charges and that I have sent them a cheque LESS THE STANDING CHARGES. BG replied but it told me nothing other than they confirmed they had put me on a new tariff. I am now waiting to see what happens next. Of course, the stress, I have not thought about anything else since first opening both bills.

Profile photo of Charlie Berry
Member

Hello Ray,

If British Gas changed your tariff then they absolutely ought to have informed you of this, and given you an idea of how much you would pay over the next year with that new tariff. If you weren’t aware of the tariff change I would suggest you make a formal complaint. Even if you had requested the tariff change then you ought to have been informed of the standing charge element of your new bill. It may be a good idea to compare your prices with other suppliers and see if you could save elsewhere. You can use http://www.which.co.uk/switch, all you need are some details about your current tariff and how much energy you use.

Standing charges are becoming increasingly common, with many suppliers changing their tariffs to this model recently. This is partly because it is likely that the regulator OFGEM will prevent companies from offering confusing tiered price tariffs (which are the main alternative at the moment) later this year. The standing charge covers the cost of maintaining the network and supplying the energy to your house- however, low users such as yourself can find themselves worse off under this system, as you’ve found. That’s why we’re campaigning for OFGEM to introduce a single unit rate on all tariffs which would mean the suppliers could cover their fixed costs, prices could be easily understood and low users were not put at a disadvantage.

Profile photo of malcolm r
Member

Charlie, not everyone agrees with Which’s stance on just unit pricing, as you will be aware from other conversations. There is not one pricing system that is fair to all consumers. I want to see simplified tariifs that give us a choice – then I can decide which supplier and tariff suits me best – i.e. cheapest over the year.
Ofgem have consulted again – The Retail Market Review – Final domestic proposals – in March and they have included Unit and Standing Charge in their proposed tariffs, but no two-tier tariffs. The standing charge can be zero, hence Unit charge-only options.
Tinkering with which group of consumers might or might not benefit is not the real issue. What is needed is genuine competition, and speed of switching suppliers when a tariff may change so you are not financially penalised.

Profile photo of RaymondMullins
Member

Dear Charlie,

Thanks for your reply and a separate earlier email telling me about legal advice available, forwarned is forarmed as they say. In the meantime I am waiting to see if BG get back to me with anything meaningful.

Regards, Ray

Member
Rocky says:
31 July 2013

Hi Josh

I get the impression from the news today that the energy companies are not making a great profit from the retail sector, however the major companies are also have operations in the generating and or wholesale sectors where the profits are stated to be greater. And so, presumably, there is a hidden or undeclared profit in retail prices from these companies.
I also have the understanding that regulation only applies to the retail side (which is ring fenced from wholesale operations)

I presume that you are calling for transparency in both the wholesale and retail market but you do not make that clear.

Should regulation apply to wholesale prices where the electricity or gas is sold on the retail market?

Profile photo of malcolm r
Member

Rocky, the figues bandied about for profits are 3-5% retail, and 20% wholesale. It must be remembered that profits at the generation end are partly used to fund new plant.
It would not be right to ask every business to disclose all their operating costs and margins, for commercial and competition reasons. However, since the energy sector is partly subsidised and needs to meet UK and EU objectives, it should be regarded more as a joint venture, and required to justify its prices – even if confidential to the regulator.

Profile photo of Josh Green
Member

Hi Rocky

I think the point I would emphasise here is that there is so much we don’t know! Yes you’re right that the profits this week indicate that the margin in retail is low(ish), but because these companies are vertically integrated, i.e. they generate power and sell power, it is so hard to tell where the profits lie and what the level of those profits is. We absolutely think that transparency is paramount in both retail and wholesale energy markets. We have called for ring fencing of supply and generation businesses so that it would be easier to identify profit levels. There also has to be much more transparency in energy trading that is done “over the counter”, rather than in formal exchanges.

Profile photo of malcolm r
Member

Josh, you are on tricky ground in trying to get commercial organisations to disclose real profit levels. I am not sure whether it is even feasible without knowing their business obligations. Since 5 of the 6 are foreign, we could run into the same problem as Starbucks, Google etc – revenue can be transferred to reduce profits in one country. This, I would think, is an EU issue, not only UK.
However, as the energy generators are inextricably involved with government – renewable targets, CO2 emissions, subsidies, funding future plant and infrastructure – there needs to be a means of monitoring performance and profit even if it is confidential; between government, the companies and the regulator, to ensure there are no cartels operating and that it is free market.
Government is responsible for a significant part of the price rises – persuading supply companies to invest has required generation price guarantees. Presumably this was felt more appropriate than using government borrowing and adding to our deficit. Probably a lot better than PFIs though.
It is not straightforward.

Member
Spelga says:
31 July 2013

Market competition is obviously not working in the power utility business. They collectively behave like a cartel.

The only way to ensure that the price rises, imposed by the energy utilities, are justified is for the utilities to present their case for price increases to the regulator. Put another way, if a utility wishes to increase its prices then it should prove that the increases are necessary. Then the regulator can approve or disapprove the proposed increase.

This creates a degree of transparency to the process and stops the regulator hand-wringing we see every time a utility increase its prices.

This is not a novel proposal – it is used by many western countries.

Profile photo of RichardScott
Member

The first sentence of this article talks about “the energy regulator Ofcom” – big mistake, as correct watchdog is Ofgem. Which? must check the details carefully before confusing their readers.!
The big news today is that Centrica ( British Gas owner) made a 9% increase in its 6 monthly profit this year, but they still do not rule out price increases this winter. !

Ofgem needs to get a grip on these companies, who are pushing their luck – just like the banks – they don`t get it. Their must be some way of curbing these excessive profits.

Profile photo of Patrick Steen
Member

My mistake Richard. Too much work on mobile phone price rises and nuisance calls. Thanks for spotting.

Member
Doug Scott says:
31 July 2013

I’m with EON, and I’ve just renewed my contract a couple of months ago. Now I’ve received notification that my monthly payments have increase from £102 per month to £178 — almost 80% increase!

And I’m stuck with this contract for another 10 months.

Profile photo of malcolm r
Member

Doug, it seems unlikely your energy usage or your tariff has increased by 80%? It may be you have been underpaying and this is recovering the underpayment. If that is the case you should be able to pay off the amount owed separately and reduce your direct debit. Alternatively, wait till your higher repayments have made up the shortfall and then ask for them to be reduced to match your consumption.

Profile photo of Charlie Berry
Member

Hello Doug,

As Malcolm says, it sounds likely that your previous direct debit was set too low and E.ON so you have been building up debt on your account. At Which? Switch we have recently heard from many people in a similar situation to yourself. The long, cold winter means that most of us have been using more energy than we usually would. Most energy companies review your direct debit once every 12 months and so the amounts that were set up last year have most likely not covered your usage fully. I would recommend that you watch your bills closely over the next few months and call E.ON once your account is back in credit to ask for the direct debit amounts to be lowered again.

Profile photo of John Ward
Member

We have had a similar DD increase for the reasons that Malcolm and Charlie have given. We became new E.ON customers in December 2012 because we bought a new house that was already running on E.ON, with an E.ON smart meter, and we had no idea what future consumption would be as the property was significantly different to our previous home. As it happens, I think E.ON have been alright; I would not have chosen them, and with all the other things we have had to deal with after moving into a new house, changing suppliers has not been very high up the ‘to do’ list. I have been wondering whether energy companies have a tendency with new customers to give lower forecasts of energy bills in order to appear more competitive. Diffficult to prove … just a suspicion.

I was very satisfied with Cooperative Energy at our previous house, not just on pricing but their overall responsible approach, and we might switch back to them once the first twelve months are up. Substantiating Charlie’s point about last year’s bad summer and cold winter, I had to pay a large amount to Cooperative Energy when closing the previous account as the DD payments were seriously out of line with actual requirements.

As an aside, I am wondering what happens with company-specific smart meters when you change supplier and whether there are any refit costs; I expect we shall find out in a few months time!

Profile photo of Charlie Berry
Member

Hello John,

In answer to your question about smart meters; unfortunately as it stands the meter will stay in place but will just become a ‘dumb’ meter. This is because the smart meters that have been installed by suppliers so far only work with the installing supplier’s system. We’ll have to wait until at least next year for a standardised system which works with all suppliers to be in place. Of course, before switching you can always speak to your intended supplier about whether they would be willing to install a new smart meter for you, and whether there will be any charge for the installation.

Profile photo of wavechange
Member

e.on never directly admitted to having a policy of keeping customers in credit and ensuring that they did not get into debt over the winter quarter. In contrast, when I switched to Scottish Power, they were quite open about getting customers to build up a credit before winter. I welcome honesty, even though I would far prefer to pay for what I use. 🙂

My experience with e.on (and their predecessors, Powergen) was that it it was easy to get them to revise direct debits or issue refunds on request. e.on regularly increased direct debits when I was obviously well in credit. I don’t think their computer could cope with the fact that I use less energy than many people.

Member
Doug Scott says:
2 August 2013

Hi Charlie,

I’m not at all happy with their forecasting model which seems to seek out a massive balance rather than a zero balance – I remember the days when I paid nothing until the end of a quarter, and then paid for actual usage.

I have already used a system similar to that you suggested, but the payments went over-high (£146/mo), then following my challenge, super-low (to £102). If we hadn’t had such a cold year where I left the heating on the entire year it would probably have been OK with just a few pounds extra.

The problem was that charges ballooned and the annual review was inadequate to keep pace with the changes. I can look back to 2008 and my quarterly bill varied within the year between £216 and £488, but then from January 2013 the bills were £525, £606 and £616. Any way you look at it, it’s a terrible blow for any OAP – and it’s not going to go down.

My average twelve-month balance used to be over £200 CR. now it has dropped to £160 CR, but this quarter’s bill is £793.30. I think I’ll move to the Med.

Profile photo of John Ward
Member

Thank you very much for that response, Charlie. I think a ‘dumb’ meter is just right for me – I didn’t even know it was a smart meter until speaking to an E.ON customer services adviser about the rejection of my on-line meter readings!

Member
Paul Hunt says:
1 August 2013

It’s good that Which? is continuing to pursue energy pricing issues. Consumer Futures (previously Consumer Focus), the statutory body which should be advocating and representing the collective interests of the the millions of small-volume final energy consumers has been totally emasculated and captured. MPs in the three mainstream parties are being whipped or pressured by the dictates from the high commands in these parties to accept the existing and proposed legislation that sets out Britain’s idiosyncratic and excessively expensive approach to complying with the EU’s 20:20:20 energy policy and climate change objectives. (20% share of renewables, 20% reduction in CO2 emissions and 20% increase in energy efficiency by 2020.)

The normal process of democratic governance has failed and, apart from occasional sorties by Which?, there is no process to advance and protect the collective interests of final consumers. I agree that increased transparency is necessary, but it is totally insufficient when final consumers are atomised, isolated and individualised by the supply oligopoly that has suborned government and captured regulation and when, as a result, consumers have no effective means to pursue the collective action to advance and protect their interests.

Two factors are impacting on energy prices and on the national policies being pursued by all EU governments to comply with, or go beyond, the EU’s 20:20:20 objectives. Firstly, gas prices in the EU’s long-term contracts (LTCs) with external suppliers are far hgher than they need be and the big EU energy suppliers have an incentive to manipulate the traded wholesale price in the UK to minimise the gap between it and the LTC prices. High wholesale gas prices mean high electricity prices since, in most cases, gas-fired electricity generation sets the wholesale price.

Secondly, the EU ETS is malfunctioning and CO2 emission allowance (EUA) prices have collapsed (around €4/tCO2). Despite a recent attempt to use a sticking-plaster, the ETS is still malfunctioning and the failure of the EU’s institutions to fix it means the EU lacks any legitimacy in seeking to enforce its 20:20:20 objectives. A reasonably and sustainably increasing emission allowance price was a sine qua non for the achievement of these objectives. But this failure hasn’t stopped many national governments, particulalry those largely dependent on imports of fossil fuels, many governments subsiding renewables at a rate equivalent to an emission allowance price of many hundreds of Euros. Foe example, in the UK, the Government has decided to pay offshore wind around £100/MWh over the wholesale price of around £50/MWh which equates to an emission allowance price of £250/tCO2. Yet CO2 emissions are increasing.

The key and pressing challenges are to fix the EU ETS and to drive down wholesale gas prices in the EU. But this will require effective co-operation by national governments in the EU and, in Britain, effective engagement with the EU seems to be the last thing most people want.

So a combination of policy objectives without efficient means to achieve them, a lack of effective consumer representation, abuse of market power by the major energy suppliers, the lobbying efforts of renewable energy investors (supported by the Green movement) and ignorance about the role and functions of the EU means that final energy consumers in Britain will continue to be ripped off.

Profile photo of malcolm r
Member

Paul, if you look at what all European countries are paying for energy, where in 2012 UK was below average, there are a lot of other countries being ripped off too? Link above.

Member
Paul Hunt says:
1 August 2013

Thank you, Malcolm. I agree. The rip-offs that are being perpetrated in other EU member-states are even more reprehensible. It’s just that Great Britain is in catch-up mode in the rip-off stakes. The Labour governments from 1997 focused on keeping prices low to reduce fuel poverty. To an extent, the energy companies, gradually merging and morphing in to the Big 6, went along with this, but they hollowed out and leveraged their balance sheets to discourage a repeat of Gordon Brown’s ‘windfall’ raid in 1997. The result was insufficient investment in generation capacity, so we’re looking at a rapidly declining reserve margin and the possibility of black-outs in the near term. And gas prices began to increase from the mid 2000s and have oscillated around these higher levels since then.

As I mentioned, this is not just a British problem; it is a European problem. And the most effective solution may be found at that level. Although DG COMP is finally tackling Gazprom’s abuse of market power I remain convinced that it needs to conduct a new energy sector inquiry. Its previous one which led to the Third Energy Package in 2009 has been totally overtaken by events. Many of the behemoths in the EU’s ‘Big 7’ are struggling financially and are angling to position themselves as being ‘too big to fail’ (TBTF). They need to be broken up – similarly to their banking brethern with similar TBTF pretensions. Only DG COMP can force this. And the EU market needs to be more fully integrated to put pressure on the external suppliers.

All this will drive down the price of gas – and could be aided further by doing a free trade deal with the US so that LNG exports from there would be expedited and applying a sensible gas transmission contractual and pricing mechanism for internal market trade. Fixing the EU ETS, with higher, and increasing, prices for CO2 emission allowances, and lower gas prices would allow gas gas to bear these higher emission allowances and drive dirty coal out of electricity generation. Electricity prices might not be lower, and could even be higher, but the requirement to directly subsidise renewable and low carbon energy would be reduced, the markets would function efficiently and clear incentives would exist to invest in a sensible mix of CO2 reducing energies.

Most consumers have little interest in, or understanding of, the policy, regulatory and commercial complexity in the energy sector to which, implicitly, they have given their democratic consent. Many commentators convey an understanding that is only marginally greater; and their limited understanding is often a dangerous thing. Which?, with its excellent reports on the retail and wholesale markets in Britain, is the exception. But it needs to leverage these much more effectively on both the national and the EU stage. Idle chatter here isn’t going to advance things very much.

Member

Completely agree with the MPS, the subsidies to renewable energy generation should be explicitly identified on our energy bills. To do otherwise is dishonest, which is of course why the government forced the energy companies to put this tax on our energy bills in the first place. If the population knew how much they were paying to make British industry uncompetitive the subsidies to renewable energy would be more seriously questioned.

Member
richard hart says:
1 August 2013

I’m a british gas customer & am annoyed that yet again these utility companies are making huge profits yet still increasing bills, I think ofgem should again look at the profits these companies are making and put a ceiling on how much our bills should increase the higher their profits the least are bills should rise, but as\we all know ofgem are spineless and won’t do anything, centrica yet
again blames green energy taxes and the wholesale price of gas, why don’t these companies invest some of their huge profits to build storage facilities when gas prices drop and then pass it on to their customers, there is little chance of that happening of course but we can all dream.

Profile photo of malcolm r
Member

Why do unit prices for gas and electricity vary over different regions from the same supplier? I would have thought standing charge would be used to cover variations in supply cost, but energy (fuel) cost would be constant.

Profile photo of Patrick Steen
Member

You may not have seen this statement from us earlier in the week calling on the need for transparency and scrutiny for all energy policy costs. Which? executive director Richard Lloyd said:

“The reality is that consumers are essentially being taxed, through their energy bills, to pay for the upgrade of our energy infrastructure. People will not feel confident that they are getting a fair deal unless the Government, along with industry and regulators, ensure these costs are open, transparent and subject to robust scrutiny like any other form of taxation.

“The National Audit Office has a key role to play here, building on the useful work it has already started we’d like to see them apply the same sort of rigour to all policy costs, as soon as is practically possible, to ensure Ministers are accountable for securing the best value for consumers at all times.”

Profile photo of RaymondMullins
Member

Richard Lloyd and the Which? team are doing an excellent job keeping abreast of all things energy for ALL UK CONSUMERS. If they were not doing it, it makes me wonder who would be.

Roll on Petrol Pump Pricing.

Profile photo of malcolm r
Member

Are you suggesting that consumers should not pay for upgrading the infrastructure? Do you think it should come out of general taxation – someone has to pay?

Profile photo of malcolm r
Member

For those interested the final proposals from Ofgem are in the document at the following link:

https://www.ofgem.gov.uk/sites/default/files/docs/decisions/the_retail_market_review_-_implementation_of_simpler_tariff_choices_and_clearer_information.pdf

On the controversial question of tariffs and standing charges:
“Tariff structure and surcharges
2.13. Stakeholders were supportive of our effort to standardise and simplify tariff structures. Some stakeholders do not feel the policy goes far enough and have proposed we consider removing standing charges and adopt a single unit rate structure. While our policy requires suppliers to adopt a standing charge and unit rate structure, we do not specify the level of standing charge and consequently any standing charge can be zero. Ofgem does not regulate prices in the retail energy market, and therefore the level of any prices results entirely from the commercial decisions of energy suppliers. Suppliers have fixed costs which they may look to recover through a standing charge. However, given the level of demand for low or zero standing charge products, in a competitive market we might expect such tariffs to be offered.
2.14. One respondent expressed concern that if wide proliferation of standing charges occurs it may undermine tariff simplicity. Whilst a wide proliferation of standing charges may work against what we are trying to achieve in terms of simplicity and comparability, we consider the potential for this to happen is significantly limited by our proposals to introduce a tariff cap. Moreover, there are benefits if consumers have a degree of choice over the standing charges to which they are exposed. This, in part, is why we are not proposing a range of rules around the standing charge element of our proposed revisions to the tariff structure. As with other areas of the package, we will monitor market developments and do not rule out taking steps to introduce further remedies in the event that there is evidence that more needs to be done to protect consumers and improve competition.”

And on communication
“Cheapest Tariff Messaging (‘CTM’) provides consumers with personalised information on how much they could save by switching tariffs with their current supplier. This is designed to improve consumers‟ awareness of the savings available from switching and prompt them to consider their options.”
which, of course, may also give the customers sufficient information to help them shop around – to see if other suppliers can offer a cheaper annual bill.