Energy prices are never far from the headlines and now a new story has emerged which puts the subject right back at the top of the political agenda.

An Ofgem Energy Enquiry is being launched into the UK’s power prices. The mega-regulator is concerned that some of the energy companies are acting anti-competitively when increasing domestic heating bills. They are concerned that three companies have raised their prices within days of each other and all have chosen a hike between seven to nine per cent.

The three energy companies are Centrica (British Gas), ScottishPower and Scottish & Southern.

Ofgem’s worries focus on a lack of transparency when it comes to the financial figures reported by the energy companies. This alledged lack of transparency is leading some commentators to fear that the energy companies are disguising the fact that they might be profiteering, because many customer prices appear to be rising at a faster rate than the wholesale prices.

Because of its fears, Ofgem has asked for increased powers from the Energy Secretary to be able to properly assess the situation. Currently, it can only order a referral to the Competition Commission.

But the energy companies have hit back, saying that they have done nothing wrong. A spokesman for Energy UK, which represents the UK’s major suppliers, told the media that:
“We have nothing to hide and believe in transparency in this complex marketplace. The review is the latest in a long line of investigations into the energy market in recent years and no previous investigation has found anything to concern the competition authorities.”

They went on to add that:
“It is a complex market, made more so in recent years by the growing number of environmental obligations on the energy sector. Customers bills today are made up far more than just the cost of the gas and electricity they use, but an array of costs associated with the need to decarbonise our power supplies.”

In other words, the case for the defense from the energy companies is that it’s the Government’s plentiful green taxes, imposed over recent years, which are actually causing the price increases.

But for many the energy companies stand accused of making too much money when wholesale prices are fluctuating. Some of the company’s profit margins have risen by a staggering 38% which underlines the fact that money is being made somewhere.

But the energy companies insist that wholesale gas prices have risen over 25%, a statement which ignores the fact that although fuel bills are now the same as they were roughly in the middle of 2008, then the wholesale price of gas was 50% higher than now. The argument is set to continue and power prices will remain in the headlines for some months to come.

Guest Article by Neil Camp 

Ofgem says it’s going to cost the UK £200 billion to secure energy supplies and meet carbon targets.

The figure was revealed after Ofgem’s report that they claim is their most comprehensive review of Britain’s energy supplies yet.

Labelled Project Discovery, the initial report outlines the challenges for Britain’s energy industry and concludes that if the targets are to be met, then customers could face potential price rises to fund this investment.

The report focussed on the challenges facing Britain’s gas and electricity supplies, and identified that the main cause of concern is the country’s exposure to a volatile global gas market and power stations nearing the end of their life.

As part of the report, Ofgem has drawn up a total of four energy scenarios applicable for the next ten to 15 years. And in each of the four scenarios there are reductions in carbon emissions of between 12% and 43% (from 2005 levels) and increases in energy infrastructure investment of between £95 billion and £200 billion.

The first scenario is called Green Transition. This one involves rapid economic recovery and a significant expansion in investment in green measures. Targets for domestic renewables are met and energy efficiency measures are effective. Also, UK gas demand falls, but electricity demand increases due to greater use of electric vehicles and heat pumps. This causes quite a hike on domestic consumer bills, with an increase of 23% by 2020.

The next scenario is Green Stimulus and this one is based on a slow recovery from the recession and restricted availability of finance. As a result, world Governments implement green stimulus packages to achieve environmental goals and boost economic activities. High carbon prices and government policies support investment in renewables, nuclear, and carbon capture and storage. Consumer bill impact is less at 14% by 2020.

Third up is the Dash for Energy scenario and plays out the theory that global economies bounce back strongly, but security of supply concerns outweigh the emphasis on environmental targets. This means that the UK’s renewables targets and the Government’s carbon budgets are missed. The result is competition between countries for energy resources, which in turn leads to tight gas supplies and high fuel prices. What’s worse is that planning and supply chain constraints means that new nuclear power stations can’t become operational before 2020. This leads to a doomsday scenario of an incredible 60% rise in domestic consumer bills by 2016, before eventually falling back.

The final scenario is called Slow Growth. This plays out the scene of a continuing recession which results in gas and electricity infrastructure being considerably lower than before the credit crunch. Once again, nuclear power cannot save the day, because incentives to rush to the atom are reduced because of low gas and electricity prices. And the result, an increased dependence on imported gas for new gas-fired power stations. And domestic consumer bills get clobbered by 22% by 2020.

Alistair Buchanan, Ofgem chief executive, said:
“Our scenarios suggest that Britain faces a tough challenge in maintaining secure supplies whilst at the same time meeting its climate change targets. However, there is still time to act. Ofgem will be putting forward proposals in the New Year based on today’s consultation to ensure that Britain’s energy industry can meet the challenges ahead.

“These are big challenges. Consumers are already enduring high energy prices,” said Mr Buchanan. “This is why we are consulting with consumer and environmental groups, the academic community and industry to ensure any policy proposals we make are grounded on the best evidence available. Early action can avoid hasty and expensive measures later.”

Guest Article by Neil Camp