Curbing UK’s Energy Bills – Few Options Open

By Cynthia Taylor

British households have to cope with relentless rises in energy bills, while the Coalition has two objectives, which find they are on a collision course.

The government is ambitious to be the “greenest ever” at the same time they want to put a stop to “fuel Poverty”, and they want these two objective to be achieved by the next election.

Factors that determine energy bills are way beyond the influence of Politian’s – the wholesale price of gas is set by the international market, this has been a government factor and the result has been a 117% increase in the average price of dual fuel since 2004.

The Big Six utility company’s profits attract a lot of attention, however, Martin Brough who is a director of Industrial research at Deutsche Bank, has said that this is ‘less significant’ than it might be thought. The Deutsche Bank has forecast the households in the UK will spend about £48 billion on energy in the year 2015, and of this amount spent, about £1.3 billion will be recorded as post-tax retail profits. They say that even if the earning were about half they will have a minimal impact on energy bills.

Mr. Brough said that attacking the Big Six energy suppliers only raises false expectations in people’s minds that by bashing the energy suppliers the energy bills will be lowered. But he said the numbers do not support this.

At the present time the ‘policy costs’ is adding 10% to residential energy charges and this is principle through the governments ‘renewable obligation’ which forces suppliers to purchase a portion of their electricity from the European Union’s carbon trading scheme and renewable resources.

Downing Street energy Advisor, Ben Moxham has predicted to David Cameron in July that the government policy will add 30% to the average household electricity bill by the year 2020.

This is reinforced by Credit Suisse and other independent experts who forecast that renewable energy costs will reach £2 billion during 2013 at the same time that year the government will introduce the carbon floor price, this is intended to make gas fired and coal power stations pricy to operate.

At the same periodChris Huhne has proposed radical reform in the electricity market which is designed to ‘unlock’ £200 billion of infrastructure investments which will principally be in renewable sources of electricity, wind farms that are off shore and nuclear power stations.

The idea behind this is to make it viable for utilities to be able to invest in this technology, by guaranteeing fixed price for electricity that is generated by renewable energy sources. However, the cost of the capital investment it is inevitable that it will feed down into increased energy bills.

Deutsche Bank says that for government to make a big difference they would have to abandon their carbon floor price and ‘renewable obligation’, by doing so it will cut bills by 13% as of the year 2015.

Another option put forward was for lower guaranteed prices for renewable green electricity, the aim being to attract companies that are willing to invest to accept modest returns on their investment. But utilities analyst from Credit Sussie, Mark Freshney pointed out a problem that companies willing to build wind farm might be willing to take a lower return, but consumers will still be required to pay capital costs as well as the return.

Mr. Freshney has calculated that the £200bn that is invested in expenditure will, assuming a 12% return on investment over a period of 20 years, that this would place an additional burden of £113 to the general household bill, yearly, he felt that if the government scaled down its ambition, it will be the most effective method of controlling energy costs.