Energy price rises
What is really going on with energy price rises and what can we do about it?
Energy bill breakdown
Household and commercial energy bills are comprised of various costs; wholesale energy costs, transmission and distribution costs, losses, network charges, government subsidies and initiatives, metering and supplier margins. A proportion of 7-8% is made up of charges for losses and supplier margins.
Wholesale costs represent the greatest proportion of our bills. The wholesale markets are highly volatile and change on a daily basis.
Wholesale prices can be affected by all kinds of global events, from infrastructure problems to natural disasters, economic downturn, political unrest and even war. For example, the Fukushima accident and subsequent conflict in Libya both helped to increase the cost of gas to UK consumers.
Suppliers buy energy in advance to prevent sudden fluctuations in consumer prices. This is called hedging. A report from Ofgem found that major energy suppliers were quick to increase consumer bills when wholesale prices rose but less quick to reduce them again when wholesale prices fell.
The UK is heavily reliant on imported fuel so the global energy market has a significant impact on our energy suppy and bills. Pricing for Australian coal and Russian gas has been particularly unpredictable in recent years.
‘Green levies’ and price rises
We know that ‘green levies’ make up 6% and 11% of our gas and electric bills but what exactly do these costs include? The below chart from DECC shows which costs are attributed to which schemes. The greatest proportion is the Energy Company Obligation or ECO scheme, which provides energy efficiency measures to those living in fuel poverty. It is funded by the energy suppliers.
What can we do?
Switching energy suppliers can solve the price increases in the short term but it won’t protect you from the predicted long-term price increases, which are estimated to reach 100% higher by 2020, according to DECC.
On-site renewable energy generation can ‘fix’ your electricity rates for the next 25 years and thanks to guaranteed subsidies for 20 years you can earn a generous income too! Ask us for more information