Wholesale nonsense on energy
Today’s significant rises in energy prices for 8.4 million Scottish and Southern Energy (SSE) customers are the tip of the iceberg.
They are nightmare timing for customers, who face dual bills now approaching £1500 a year on average. It’s a nightmare for the Bank of England which was just beginning to anticipate inflation falling below their 2 per cent target. And it is unexpectedly a nightmare for the government, who are being squarely blamed for this by SSE.
The biggest single culprit identified in a corporate video from SSE boss Ian Marchant is the costs of social and environmental schemes mandated by the government. In particular, he points to the subsidies for loft insulation that the government has obliged energy companies to give. He says the costs from that scheme have doubled.
In this freest of markets, expect all the other five companies to follow suit. Indeed the curious pattern whereby massive hikes are announced just before the winter, and then partially unwound after the coldest weather finishes, will probably continue. Good business at a time of peak demand perhaps. But many customers will find it intensely cynical at the same time.
What is perhaps most interesting about today’s announcement is that SSE did not play up that excuse about wholesale prices being the prime factor behind rises. That is because such reasoning is completely indefensible. Wholesale nonsense you might say.
For starters, wholesale costs of gas and electric are now £10 cheaper than four years ago. Average duel fuel bills are £210 higher, even before today’s rises. An Ofgem report released today suggested that profit margins were looking up because of a fall in wholesale market prices
More generally these graphs from Consumer Focus show there is no pattern connecting wholesale and retail prices bar pre-Winter rises. Here’s one for electricity, and another for gas.
This could go in three rather interesting directions from here.
1. A populist backlash from the right against hard pressed consumers having to pay for Green energy
2. A populist backlash from the left about profiteering energy companies. Think windfall taxes etc.
3. Perhaps as this is not driven by wholesale prices, one or two energy companies will not raise their energy prices, having managed their green commitments more effectively than others.
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