Electricity prices: driven by dogma

Electricity consumers have experienced sharp increases in prices. The rapid changes of a couple of years ago have subsided, but prices remain high and liable to further increase.

The regulator isn’t tackling the government policy behind this. Instead it is looking only at shifting the costs around between consumers.

Escalated

There are several reasons why energy prices in Britain have escalated for both businesses and households. These include lack of infrastructure investment, reliance on imports and above all its net zero policy.

This policy involves direct subsidies, paying for renewable sites not to produce at times, and paying for expensive gas-fired peak standby supply.

Staying idle

The latest domestic energy price cap fix by Ofgem, announced on 27 August, is higher than predicted. About one-third of the increase is attributed to “…an increase in electricity balancing costs.” That includes paying for offshore and remote wind farms to stay idle and buying from gas-powered generating stations.

‘The reason is the lack of cabling infrastructure.’

And the reason for this situation is the lack of cabling infrastructure linking wind farms to the grid. This is essential for the efficient use of renewable energy, whatever decisions are taken about other generation sources.

Key projects such as the National Grid’s Norwich to Tilbury link to North Sea offshore turbines are behind schedule. It won’t be completed to meet the Labour government’s self-imposed target of decarbonising the national grid by 2030.

Opposition

The Norwich to Tilbury project isn’t even fully approved yet. It’s meeting opposition from residents opposed to the choice of pylons rather than underground or offshore cables. The government’s claim that this is to save consumer bills rings hollow given the massive costs of their net zero policy driving the rush to wind power.

According to the energy regulator Ofgem, the answer is not to address any of these issues. Instead it wants to make Britain an equal society and make “the rich” pay more.

‘Ofgem wants to make Britain an equal society and make “the rich” pay more.’

Ofgem carried out a review of the energy pricing system earlier this year. It notes that the standing charge is a lower proportion of the bills of well-off people, a simplistic observation.

To resolve that, it proposes that standing charges should be reduced and that the unit price of electricity should be increased. This does nothing at all about the underlying costs, and does not really pretend to do so.

Overall rise

In that way “the poor” pay less and the overall bills rise. And meanwhile, Ed Miliband, the energy secretary, has told us that those on means-tested benefits will receive a contribution of £150 to their energy bills, funded by better off customers.

But domestic suppliers have recently been increasing standing charges more than the unit price, at least in part in response to the way Ofgem manages energy price caps.

Tinkering

The regulator appears not to understand the full effect of the markers it is regulating – and expects that tinkering with the price structure can distract from the overall increase and the evident failures of energy security and supply occurring under successive governments.

Miliband has suggested reducing electricity bills would be possible by obtaining more power from British renewable energy, replacing some of that produced with imported oil and gas.

But Ofgem ensures that consumers can never benefit. Under the marginal pricing system, the wholesale price of all electricity is set at that of the most expensive, which is that generated with natural gas. Producers keep the extra profit from the lower cost variants.