Senior reporter
Deciphering energy bills is a nightmare process. The complexity of variable, multi-tiered tariffs, discounts, taxes, levies and distribution costs make it very difficult to work out how much utility firms actually charge us for energy. It’s probably one of the reasons why more people don’t take advantage of the ability to switch to a cheap provider.
It gets even more difficult to understand where all the money comes from and goes to as you move up the business chain to a world of wholesale prices, subsidies, government budgets and feed-in-tariffs.
This is the problem with the energy market: nothing is simple. There are no easy answers to the issue of rising bills that don’t involve ripping up the countryside, dumping radioactive waste and provoking runaway climate change.
Even the supposed energy panacea of the moment, fracking, offers very little in the way of a secure solution because the UK is a small island operating within a European gas market and so is unlikely to see the transformation of the energy (and natural) landscape the US has experienced in recent years.
This week we’ve heard how the big energy firms are being “forced” to raise their prices, because rising wholesale costs and the government levy on bills used to invest in energy efficiency, renewable generation and to support vulnerable consumers. To be fair to SSE, which is putting prices up by 8.2 per cent, the company is making a loss at the moment. But then that hasn’t stopped it from increasing the dividend paid to its shareholders.
However, the situation is far more complex than can be summed up just by calling energy firms greedy or complaining about government subsidies for wind farms. The government says supporting renewable energy will keep energy costs lower than they would otherwise be in the long run, and they may be right.
While oil and gas prices have risen, the wholesale cost of power in Europe – which makes up the biggest part of our bills – has actually come down in the last few years due to falling demand, increased efficiency and an oversupply of energy from all the renewable installations that have come onto the grid, supported by various government subsidies.
Yet prices are at near record levels, not just because subsidy and investment costs are passed on to the consumer, but also because it’s harder for traditional utility firms to operate when they have to shut down their gas plants to prevent an oversupply of wind power overloading the grid.
Facing an increasingly uncertain position and an unstable policy landscape, the companies are also reluctant to invest at a time when we need to carry out massive upgrades to the grid and develop new forms of generating capacity to make the necessary curbs to our carbon emissions in order to prevent dangerous climate change.
The Royal Academy of Engineering this week became the latest group to warn of potential blackouts in the UK in the next few years, not because we need to build more power stations now but because the market isn’t functioning in the way we need it to.
Faced with such a complicated and confusing situation, it’s very difficult to know how we can address the problem. But I’ve come to two conclusions. Firstly, the UK needs to get used to the idea of paying more for power. The era of cheap energy isn’t just over; it was an illusion in the first place. Yes, UK energy prices may have been kept down in the last few decades by an oil boom that is inevitably if not consistently declining at the same time as global demand for energy is massively increasing.
But in previous generations we subsidised the fossil fuel industry (and to some extent still do), produced nuclear power without taking into account its radioactive waste and pumped millions of tonnes of carbon dioxide into the atmosphere in a way we now know is unsustainable. So we need to move to less damaging ways of generating electricity that will eventually come down in price but for now require large amounts of investment to get them off the ground (just as the oil and gas industry has had for many years).
My other conclusion is that politicians need to stop announcing headline grabbing policies that only attempt to address the symptoms not the cause of the problem. Labour’s suggestion of a price-freeze only further destabilises the situation and makes it even more risky for energy firms to invest the money we need them to. And the Conservatives’ suggestions that consumers should be automatically placed on the lowest possible tariff and be able to switch supplier more easily ignores the fact that competition for customers is a very small factor in the prices of the small number of firms that dominate the consumer market.
Where our energy comes from and how much we pay for it are two of the biggest challenges facing our society . Let’s stop pretending we can address them overnight with simplistic measures that in the long-run will only make things worse.
I suggest everyone reads the ‘Zero Carbon Britain’ report produced by the Centre for Alternative Energy (http://zerocarbonbritain.com/). This shows how we could resolve both supply and demand in a sustainable way…
I must agree that we have to make the most of the foolish massive investment in wind-power. However, the issue of pricing of energy does deserve more consideration.
Those of us who have been involved in power generation for many years will remember that the CEGB used to publish its generating costs regularly and these allowed users to plan their costs and to question inordinate price rises. The “Free-market” has enabled generators and distributors to hide behind a plethora of excuses that are not in the public domain. It would appear that opacity allows much larger profits than transparency did.
It is almost amusing to see the fear generated by price-capping threats.
The power generating industry needs to be brought to heel and the sooner the better for everyone but the power giants.
The problem of capacity has been driven by the hopeless insistence that coal fired plants are shut down. Whatever we in the UK or Europe may achieve in the so called global warning debate, the continued expansion of Asian coal burning makes our efforts of minimal consequence,it is all very well standing on the moral high ground, but when the lights go out, no one will see you there.
AD & Biogas from every form of compostable material not used in more economic way (recycling of paper & card ~only after checking of NO better use of packaging than just one use transit) could add to UK energy source supply. When farm slurry & sewage added in as “feedstock” & not needing landfill or other disposal this ought to be viable & reduce L.Auth’s costs
The false fantasies of being in the publics best interest, regarding privatising the utilities, is eventually showing it was at the publics expense. Take EDF for example they in a way are like the old CEGB as they are owned by the French government. EDF continues to be a successful and profitable company. When this country had nationalised industries making good profits the government privatised them for a quick short term gain to the crown coffers, no wonder this country is in such a financial mess. The other trouble with our governments, as the article partly divulges, is the complication of certain sectors of privatised industry with regard to subsidies that many are unaware of. Many power customers do not realise they are subsidising wind, solar, elderly, etc and assume this is paid from the increasing taxation.
Energy production needs to be safe, inexhaustible and nearly free. Not just for the UK but for the world – that should be our goal for humanity. Getting there will be hard on our generation and the next few generations to come, but it’s a goal worth striving for.
Yet another opinion piece based on the assumption that we “need” unlimited cheap electrical energy. We do not; we are an animal species powered by an efficient internal metabolism.
The UK population could have comfortable and probably more interesting and enjoyable lives if we cut out over-consumption, either 3 or 4 electricity free days per week, or intermittent supplies every day, or rationing, or other demand management through smart metering.
There are a million and one ways to use less or no electricity at all or even have home which are energy positive (though that tends to dd to the problem of too much at the moment). We should be looking at inherently affordable approaches instead of a) committing to systems we can’t afford to dismantle (Nuclear) or too variable to be grid connected at large scale (Solar).
Small isolated solar / battery setups mass produced and located at every house or postcode scale would provide adequate power for essential services.
Only idiots prefer the electric guitar to acoustic, and the same goes for virtually every other technology. It really does appear that quality of life (and apparently the capacity for rational thought) goe out of the window when Electricity comes in through the door.
Why does nobody understand the difference between “useful” and “essential”?
We should finally introduce a serious carbon tax and stop subsidizing. This would be simpler and more efficient.
How cab they pay dividends and remove even more money from the company when they are making losses already?
It is like looting a burning house because the police is busy.
This fixed standing charge that has been introduced is a stupidity. If you lower your energy consumption from insulation, better boiler, less usage, solar panel, etc… you still pay this stupid standing charge. It discourage people to produce their own energy, to save it and lower the opportunity for energy saving companies. It is backward.
Maybe the challenge isn’t to get more energy, but to use it efficiently?
Why do we need to melt the snow on our roofs in winter? Shouldn’t we keep the heat inside?
Why so much business travel? Why not employ someone else over there? Saves energy and travel time for something more productive.
Instead of moving all people to London for business, why not moving companies to the North and the Midlands?
Seriously…Is it too hard to go to the moon, eradicate smallpox or end apartheid? Is it too hard to build a computer that fits in your pocket? Is it too hard to keep inventing new ways to improve our lives?
With a 30% rise in adult asthma in the past 10 years, the growing evidence that climate change is REAL and effecting our food sources, as well as producing dirty weather, we should…WE MUST put the power of our ingenuity AND our financial resources into ensuring that our children and their children survive in a world that thrives.
It is NOT too hard to build a clean energy future, any more than it was hard to advance as human beings.
http://clmtr.lt/cb/yE20cAa
We will not resolve the energy cost problems until we stop politicians from using it as a plaything. There will be 600GWs of coal fired power plants built in Asia in the next five years we in the UK have agrid demand of ~40 to 50GW in other words the demand from the EU that we cut out Co2 by 20 by 2020 which requires the closure of our coal fired generating plants is pointless political meddling.
We must get back to sound free market economics and fars if we are to keep the UK and the wider EU competitive in the modern world.
Considering the sheer unsuitability of our old energy system for the 21st century it’s little surprise the private companies (even large ones) are ill equipped to make the necessary upgrades.
1. Its expensive so a cheap plaster is chosen instead
2. Its big so the necessary standardising stifles competition
3. The investment need a long term strategy which wont be in a companies own interest.
Would state ownership solve all these problems? Maybe. Would it bring its own? Definitely. But ask yourself what are the most serious problems & are they going to go away under business as usual.
PS the only reason US shale gas is low priced is due to the oversupply of the domestic US market. With export facilities being built in the US now the oversupply will disappear and prices will rise. Much of the shale gas is a ponzi scheme, with wildcat drillers hyping the potential resource and making a profit by selling on to the middle tier. No wonder when the big companies buy in they find it a struggle to break even at current gas prices.
“Near outright admissions of error by chief executives, such as Mr Voser’s (Royal Dutch Shell) as quoted in the Financial Times, are far too rare, thanks to the bubbles of sycophancy in which most of them live.
Mr Voser commendably took responsibility in August for a $2.1bn writedown on the value of the company’s US shale assets…
SOURCE FT ARTICLE: By John Dizard: October 11, 2013 7:48 pm
http://royaldutchshellplc.com/2013/10/12/us-shale-is-a-surprisingly-unprofitable-miracle/
If emerging countries consume like the developed world did in the past decades, you can imagine that our modern societies on a crowded earth will push the stress on natural resources to their limit.
than nguyen
http://www.protectivepackaging.net
I agree in principle with Alan above, but perhaps he should ask his wife whether she would really be prepared to forsake her washing machine for an old scrubbing board? Mine certainly wouldn’t!
From the admittedly limited back-of-an-envelope calculations I have done, wave and tidal power are the UK’s best bet for generating electricity for the grid, and ground-source heat pumps are our best way of heating well insulated homes.
Personal transport has yet to be cracked, but for local journeys Boris bikes would at least be a good start.
To generate wind power on a national massive scale is not economical and not recommended. Wind power should be applied to remote villages with a limited population.
The solution already exists – Gentec WaTS
So its nothing to do with the sweetheart deals then?
Sweetheart deals are where a company providing energy generate it and retail it, and these work very simply. They split the company in two and the supply division supplies the retail division. Basically one company split into two yet they supply themselves. By doing this they can do two things, play the PR game and fool Governments.
Supply side sets a price and sells to retail side and it is at artificially high prices, retail side has two aces to play. Retail side provides accounts to Government and blames the wholesale price and says “not us gov” its high wholesale prices, Government are powerless to act.
Retail side profits drop, but wholesale prices rise drastically and its the wholesale side who make massive profits for the company instead. But massive profits are made.
Supply side gets wise to people learning their tactics so switch to cross supplying which is where they employ the same tactics but supply their competition. Company A supply side supplies company B retail side and vice versa, now we have cross sweetheart deals.
Highest wholesale price is taken and everyone raised their wholesale price to the highest wholesale price so profits are maintained or even increased.
Over a year electricity is only about 11% of my domestic energy usage (kWh), most of my heating and cooking is by gas. The ‘sustainable energy’ field is dominated by electricity generation (eg windmills, which are springing up around here like mushrooms), but that’s around 4 times the price of my gas per kWh equivalent. The Scottish target (I live in Dumfries) is 100% of electricity by sustainable means (most wind power) by 2020 (or thereabouts), but this nowhere near meets the domestic heating requirement (and ScotGov figures suggest that my gas/electricity mix is fairly typical). The SE target seems to be blind to the typical domestic heating energy mix, and what would happen to bills if you did try to heat 100% electrically!! Cameron’s advice to shop around is just pathetic, and seems in reality to be a implicit admission that the government doesn’t actually have a coherent energy policy! Mike Gray
So…’Only idiots prefer the electric guitar’…. sums up your mentality Alan. A case of ‘My way or no way’! Shows you to be just another bigoted ego driven wannabe greenie.
I suggest you enter the real world and actually consider all the variables inherent in the supply of power to this country. A bit like the vast majority of reasoned, rational people on this and many other comments sections have been doing for years. Most of us consider a carefully calculated mix of supply processes be utilized, including the existing, ridiculously expensive, and largely useless wind farms, to ensure this country does not suffer increasingly frequent blackouts.
Of greater debate than the cost of energy, is the cost of doing nothing to change the potential impact of creating and using it – see this clip for an interesting take on the topic:
http://www.upworthy.com/one-guy-with-a-marker-just-made-the-global-warming-debate-completely-obsolete-7
It is concerning to see the way in which some advocates of the anthropogenic global warming scare have decided to tell others how we must live. Energy deprivation and fuel poverty are the logical results of the proliferation of heavily subsidised, intermittent and uncontrollable wind and solar projects. These “playground toys,” always require fossil fuel back-up for when there is little wind and no sunlight. There must always be a full winter peak demand MW output available from fossil fuels and nuclear to ensure the lights stay on.
We have hundreds of years in reserve of shale gas beneath our feet. The Royal Society and Royal Academy of Engineering have told us that properly regulated fracking to exploit this bonanza is safe. It is suggested that there is sufficient indigenous energy from shale gas to heat every home in the UK for 1500 years. Wind was replaced by steam centuries ago for obvious reasons.
Why are some technical people still infatuated with the least sustainable and most expensive of all energy sources, wind and solar? To my mind this is Luddite ideology replacing logic. Even for the true believers in catastrophic anthropogenic global warming (which hasn’t happened in the past 17 years and was a meagre 0.7 degrees C averaged over the past 150 years anyway)? Even the IPCC AR5 declares all its prior warnings of catastrophe are now considered to be very low/negligible risk as any thinking person could see from the empirical evidence.
The UK contributes less than 2% to world CO2 emissions to begin with and being boy scouts in energy deprivation and fuel poverty, thinking we can lead the world is a dream for the LibLabCon mandarins but a nightmare for the UK electricity consumer. The huge land consumption by wind and solar is an obscenity in itself. All carbon taxes, carbon trading and renewable subsidies should be abolished.
Temp trend best-fit graph showing CO2 against mean global temperatures since 1958
http://www.climate4you.com/images/HadCRUT4%20GlobalMonthlyTempSince1958%20AndCO2.gif
Cooling for 30 years; warming for 25 years
It would seem that the sceptics have it!
Solar panels on the roof, wind generator in the garden generating electricity which is used to produce hydrogen. Hydrogen powers fuel cell which provides power for the home.
Is this a future without central power generation.
?
In industry open book costing is the norm especially in the automotive industry. How about the energy companies do the same, it can be very enlightening. Yes they may try to hide behind jargon but the energy regulators could give them a no nonsense grid to work to. That way the customer is not blinded by techno gobbledygook to hide the truth. You never know the end users may just realise that energy does not come cheap, and be able to make a rationale decision on who they wish to supply them.
I refer to Alan’s comment: “Only idiots prefer the electric guitar to acoustic, and the same goes for virtually every other technology.”
I was wondering how the idiots and non-idiots are meant to listen to their chosen music at home – is Alan suggesting that we should use wind-up accoustic gramophones or should we visit folk clubs when we wish to hear non – idiot’s music; these would have to be small venues of course as a bigger venue would require a P.A. system with the dreaded electric powered amplification. Oh, hang on a minute – wouldn’t we need to travel to such venues anyway and use energy in the process?
I get the feeling that Alan doesn’t understand the massive variation in power consumption of electrical equipment – my own guitar amplifier uses 75 watts flat out (contrast this with the many kW consumed by electrical heating); of my group of friends I am the only one with a guitar amplifier so I would estimate that maybe 1 in 40 households has one and they are rarely used unlike T.V. sets of greater wattage which are often switched on continuously; if electricity consumption is to be restricted on the grounds of taste then I would suggest that soap operas and vapid ‘reality’ programmes should cease being transmitted!
p.s. I wonder if Bob Dylan knows that he became an idiot in 1965 at the Newport folk festival?
Interesting how we’re wingeing about prices now, and the usual loony lefties are blaming the privatisation of power companies when the situation has moved from the time when we had Europe’s most expensive Nationalised energy to some of the very cheapest, private, and which thanks to the idiot Brown, pays the dividends that will be working people’s pensions. Our real and current problem is capacity, and that comes down largely to thirteen years of paralysis on any form of real investment from a Labour party that invested only in Public Sector votes, not infrastrucutre or services. Of course, the ongoing sabotage of Nuclear power again by the Left and its luddites left us without the industrial capacity there to hit the ground running now.
Britain’s problem, and Britain’s fault. Re elect Labour and the lights WIL go out.
A new reactor at every existing and past Nuclear site is what’s needed.
As several of the correspondents are pointing out: the cost of the AGW cohort is becoming rapidly more apparent and they still deny all the evidence that the models that they use are fatally flawed.
However, while praising the long-overdue decision on Hinckley nuclear station, we have to make the best we can of the massive investment in wind that is now in place.
In my view they should be linked to a set of pumped storage power stations so that they can operate to their hearts content when wind blows and not interfere with the grid when it does not. The use of cliff-top reservoirs and sea-water would look possible.
While discussing the views above, the issue of transparency also arises frequently and should be an immediate political priority.
All new houses should be built with a very high insulation factor and designed to use low voltage DC power only, by using solar and/or wind power to charge a battery system and heat domestic hot water. The system could be 12, 24 or 48 volts DC or a mix of these voltages depending on the installed appliances with mains power supplied as a backup and transformed down to the DC voltage. Most domestic appliances including TVs, fridges, freezers, gas heating etc., are already available as DC powered models for caravans and mobile homes. Most modern lighting is available as low voltage DC type. The huge losses incurred converting domestic wind & solar generated energy from DC to AC mains power would be eliminated. Ground heat source systems could also be powered with this low voltage power. Mains power need only be used at night (off peak) when a high electrical load is required (cooker, washer). With a very high levels of wall/roof/window insulation, the heating requirement could be reduced from around the average 50 kwhrs per day to around 10 to 15 kwhrs per day