Energy prices in the UK

With winter drawing in, hikes in energy prices and fracking becoming a thing Shout Out’s Editor, Craig Cunningham, takes a look into the state of the energy industry in the UK today.

Ever since the Industrial Revolution back in the late 18th century this great nation has been a staple in the global energy market, just last year the UK consumed the equivalent of a huge 180 million tonnes of oil whilst also exporting 75 million tonnes out of the country. Even though the level of consumption in this country is lower than that of our German and French counterparts, many experts believe it is still to0 much. On top of this the UK has been criticised for its heavy reliance on classic fuel types like oil, gas and electricity compared to other members of the EU. The Germans have 21% of their energy output coming from renewable energy and their government has issued plans to have this number raised to 35% by 2020. Our very own government here in the UK had looked at financial incentives to help get the ball rolling, subsidies for households who purchase solar panels for private use among other things. However this has taken a huge knock, as earlier this year the government declared they would not hand out cash subsidies and revised a reduced feed-in tariff for owners after just 3 years of trying to make renewable energy worthwhile.

Surprisingly this has meant that many people have decided it is just not beneficial to go with sustainable energy, instead they’d rather stick with classic fuels supplied by the big six (SSE, Scottish Power, Npower, EDF Energy, EON UK and the largest, British Gas). Furthermore it was recently announced that energy prices in the UK were set to rise, a cunning move or just a coincidence? Well that’s subjective, but it certainly gives the conspiracy theorist in all of us something to consider.

The ‘Big six’, particularly Npower, have announced their prices will rise by up to an astonishing 10.4%, adding around £137 to the average fuel bill. This certainly won’t help the many households who fall into fuel poverty every year. Back in 2011 2.4 million households suffered fuel poverty, this is when a household must spend more than 10% of its income on heating and powering a home. According to Mike O’Connor, Chief Executive of Consumer Focus, this number of 2.4 million is expected to rise to a disgusting 9.1 million by 2016. Such facts paint a dire picture of the alarming rate at which these energy companies are effectively impoverishing households with their monumental price increases.

Outcry, from both the public and the media, has forced the hand of politicians to finally start asking questions of the ‘Big six’ with a committee of MPs being formed to investigate. A group of stand up politicians will act on behalf of the British political system like a limp wrist poking around. Surely this will mean the energy companies will tidy up their act and step in line like the rest of us? No doubt.

Leading the brigade is Sir Robert Smith, who insists that the committee will examine the ‘reasons and justification’ for such hikes as well as looking at how the transparency of said companies can be improved. Reports over the last year or so of wholesale energy prices going down and consumer prices going up makes the need for transparency within energy companies more urgent than ever before. A report, by Ofgem, of the country’s household energy bills was released in February earlier this year; they stated that of your energy bill, 58-67% was made up of wholesale energy costs, supply costs and profit margin.

This lack of distinction between those three factors furthers the real absence of competition that consumers are seeing in the energy industry today. Some (including myself) would go as far saying that these corporations are colluding together, what with the  uniformed price rises every year (whilst wholesale costs go down) and absent profit margins. Playing the market through collusion is a crime (especially in terms of creating a monopoly and price fixing) and is something that Sir Robert Smith and his band of merry men look to explore, with one MP branding any connivance between the large energy suppliers as ‘unacceptable’.

Worry not though as Labour and their lead cavalier, ‘Red Ed’, produced plans to implement price freezes on energy bills for 20 months in hopes to save the impoverished souls. However for many I don’t think freezing prices is going to cut it, with 24,000 fuel poverty related deaths last year being a direct result of current energy prices. That’s not only the case, there is the idea that a price freeze may actually make things worse with market regulation restricting energy companies and their ability to supply. To further the misery competition would become an irrelevant topic as prices would all be the same, stopping consumers from finding better deals and deterring new companies from entering the fray. Furthering this economists have deplored that a price freeze would only enhance a market of corporations who look to each other to secure prices and nice profits. Meaning that this would only freeze out independent firms who would look to add real competition to the market. Either way it sounds like we are up a certain creek without a paddle.

So what’s next? Well one way of stopping the rot and corporate excess is to make things more transparent, a truly transparent system would force companies into shaping up and producing energy more efficiently, and at a smaller price. That’s definitely the stuff dreams are made of. Another way is to introduce a new source of energy that would cause a minor revolution in the price of heating and electricity.

Enter fracking. Fracking is certainly a contentious topic, arguments fly back and forth whether it is dangerous or not and whether it is right or wrong. How would such a contentious topic help the issue? Well in terms of energy prices, a lot. Imagine if you and a friend had a number of cakes and you both sold them at the same price, you two would have it good. Now imagine if a new source of cakes were discovered and it meant cakes became more readily available with new sellers popping up everywhere. You and your pal would have to adjust your prices accordingly to stay in line with competitors who could get this new cake and sell it for cheaper than it’s been sold before. This oversimplified example is exactly what the introduction of a new source of gas would do to this country’s energy industry. Numerous cases, particularly the recent fracking revolution in the US, have shown that an introduction of a new energy source has affected the market price of energy in a positive way. However like any classic source of energy there are negatives, particularly the affect on the local and global environment with numerous protests being held to prevent the inception of fracking operations.

Ultimately, the image of Britain’s energy industry is one of unscrupulous dire straits.