7 Jun 2011

Energy hikes ‘disappoint’ the Government, even as they know we face £2k annual energy bills

The rise in energy prices announced today by Scottish Power was massive. A hike in gas costs of a fifth, and ten per cent on electricity. That’s £180 on the average cash-paying duel fuel customer’s annual bill, taking that to a whopping £1400. It’s not even the first rise this year.

These rises are not just inflation-busting, they are inflation-creating. The bank of England had pencilled in rises of 10-15 per cent. When, in our oh-so-competitive domestic energy market the rest of the Big Energy firms randomly choose to increase prices by the same amount, it will have a tangible impact on our already double-the-target inflation numbers. Headaches for the Bank of England, yes. But real hardship for millions who are struggling with falling real wages, and living standards.

Interestingly, these massive price rises are of exactly the type that the High Street can not get away with. Inflation in discretionary spending items has been contained by the fact that hard-pressed consumers will simply stop buying. That is not an option for fuel and electricity. We, as consumers, are a captive audience.

Of course, Big Energy says that horrible wholesale gas prices are being driven ever higher by dastardly events like the Arab Spring and Fukushima and Germany’s abandonment of nuclear power. Energy prices are up 30 per cent from the beginning of the year. But for another perspective on this look at our graph:

You’ll see that in 2008, gas prices at home were hiked by similar amounts, as the industry price paid to Norway, Russia, and Qatar etc, went sky high. But then look what happened in 2009, the industry price collapsed, and the domestic price came down somewhere between a sliver and a tad. So today’s home price rise is from an already elevated level.

Thankfully Ofgem are on the case. No really, they shot a few harpoons across the fat underbelly of the Big Energy whales with a document called Project Discovery. I’m not too sure how kindly the new Coalition Department of Energy took this, and there’s been something of a power shuffle going on in the last few months.

The Secretary of State, Chris Huhne, gave a fascinating response to today’s rise. It was “disappointing”. “But it underlines why the government is building an escape route from a high fossil fuel future. We need to get off the oil price hook and on to clean, growth”.

That is not quite the same disappointment being expressed by Scottish Power’s customers on social media networks. They aren’t saying: “I’m disappointed but at least this will incentivise me to stop overusing my boiler, and thus the planet will be saved”.

The truth is that energy ministers are surely not at all disappointed by this price rise. They, the industry, the regulators, fully expect a series of permanent rises in energy prices to afflict Britain’s hard-pressed workers as a result of a gamut of energy initiatives, investment in new capacity, green measures, tacit nuclear subsidies, carbon price floors etc, etc. A figure of £500 is being talked about in the industry, which means Britain facing an average of around £2,000 annual energy bills.

There are wildcards here. Shale gas in the US has lowered gas prices for the US, but seems a little overhyped in Europe, where France and Germany are heading towards a ban, and the UK faces the odd earthquake. Germany’s abandonment of nuclear power will leave it tight for energy.

What we can say, is that much higher consumer energy prices are anything but unexpected. They are the unspoken spine of Britain’s current energy strategy. It’s time for the industry, regulator and Government to fess up, face the flak, and explain to an ungrateful nation.