Consumer backlash over British Gas profits

Parent company set to announce £2.8bn profit increase

The parent company of British Gas has risked fierce consumer backlash following reports that it is set to announce a 15% increase in profits.

Centrica plans to reveal the figures this week, which show the company has made a profits increase of £2.8bn following the British Gas price hike in October 2011. Centrica have tried to justify their profits by releasing a study that shows the company have had a beneficial impact on the UK economy in terms of jobs and tax payments, but that is unlikely to appease consumers who have been hit with rising prices.

Centrica has argued that its practices are good for the country, but that won't wash with consumers

(Image source - Metro)

Richard Lloyd, executive director at consumer champion, Which?, said, ‘At a time when spiralling energy bills are consumers’ top financial worry, people are bound to question whether they’re paying a fair price for their energy when they see big profits announcements from the energy giants. Centrica’s analysis won’t change that view as record-high bills land on millions of doormats in the coming weeks'.

The news will bring the pricing of energy bills into question again, as well the Government’s plans to reduce them. PM David Cameron announced earlier this year that all energy providers will have to simplify their tariffs and make sure consumers are on the cheapest one possible. However, many critics have argued these measures won’t go far enough and consumers will be confused as to which is the cheapest option.

Britain exporting gas cheaper than it is importing it

Ofgem warns of UK energy security being 'undermined'

There are fears that household bills may continue to be inflated because of the fact that Britain is exporting gas that is fetching lower prices abroad and is importing gas from Qatar that is more expensive.

An analysis by the Guardian, conducted jointly with Greenpeace, revealed these figures, which Ofgem, the energy watchdog, believe may be undermining UK energy security because of this distortion in the market. The analysis examined the gas interconnector between the UK and Belgium; a major part of the country’s gas infrastructure, as it has the capacity to carry a fifth of the UK’s gas in winter. However, the report discovered that on over 40% of the days between December 2011 and October 2012, the gas was being exported to the continent despite the wholesale gas price in the UK being higher. Over this period, it is estimated that Britain exported over 15 times more gas than it imported.

Prices may continued to rise if market distortion isn't resolved, warn Ofgem

(Image source - www.offshoreenergytoday.com)

Analysis on monthly government data from Revenue and Customs showed that the UK was importing large amounts of Qatari gas, despite it costing up to 5% more than gas exported to the continent. Ofgem said ‘It is vital that gas on these links flows in line with market signals, to ensure security of supply for customers. However, initial analysis suggests the links are not always being used efficiently. On behalf of consumers, we are looking at all the evidence to establish the facts’. 

This news is the latest in a series of recent reports looking into the ‘dark and murky world’ (as described by Leila Dean of Greenpeace), of the UK’s gas market. In November, there were suggestions that, following the price hikes by the major energy companies, that gas prices were purposely being manipulated.

Linking offshore wind farms to grid will cost £17bn

Fears that development costs could lead to higher prices for consumers

Plans to link offshore wind farms to the grid may result in higher electricity prices for consumers, it has been warned by a committee of MPs.

The method of bringing power from offshore wind farms, and onshore ones, to land is very complex and has been a major obstacle in the development and expansion of the wind energy industry, as a heavy-duty transmission infrastructure has to be developed, which has left many wind farms waiting for long periods to be connected to the grid.

Currently, a licensing system is in place which allows transmission lines to be constructed by the National Grid and other developers, who are then given a guaranteed income for 20 years; a total cost of £17bn. However, companies can only be fined 10% of their income if they fail to meet obligations, which Margaret Hodge, the chair of the public accounts committee, fears will lead to higher prices for consumers. She said, ‘Not only is it unlikely that this licensing system for bringing electricity from offshore wind farms on to the national grid will deliver any savings for consumers, it could well lead to higher prices. Indeed the terms of the licences appear to have been designed almost entirely to attract investors at the expense of securing a good deal for consumers’.

Offshore wind farms seem to be a good source of energy, but getting to use this energy is costly

(Image source - The Guardian)

Ofgem, the energy regulator, responded to the MPs report by highlighting the fact that it was only able to cover the first four tenders for licences, and added that the competition for these licences had saved customers about £290m. They said: ‘Our objective is to ensure this necessary investment is delivered at a fair price. As with any new market, there are lessons from early transactions. The initial tenders were conducted under interim arrangements. "It has always been Ofgem's intent to refine the tender process to deliver greater efficiencies and further benefits to consumers’.

As has been said before, new forms of energy production will, in the short term, lead to higher bills to cover the costs of implementing these new initiatives, though it is expected that these renewable forms of energy production will lead to cheaper bills in the future. But what do you think? Are you willing to pay more now for cheaper bills later? Let us know your views in the comments below.

Backbench rebellion over energy bill?

'Decarbonisation target must be included' say MPs

Fears of a backbench rebellion in Parliament are growing following news that a decarbonisation target will not be included in the energy bill being put forward by the Coalition government.

Despite being seen as a crucial factor for climate change campaigners and supporters of low-carbon energy, any target on decarbonising electricity generation has been left out of the bill on the insistence of both the Chancellor George Osborne and the Prime Minister David Cameron. Tim Yeo, chairman of the energy and climate change select committee, is set to give a speech in the City this morning insisting that an amendment to the bill to include a decarbonisation target be brought forward when the bill reaches the reporting stages early next year.

The lack of a decarbonisation target is splitting Parliament

(Image source - The Guardian)

Yeo believes that a 2030 target to reduce carbon emissions from energy production is essential in encouraging investors to the UK and to give them certainty that the country’s long-term emissions-cutting targets are met. Yeo said that these issues were ‘a constant theme’ in his talks with investors, and believes that a specific decarbonisation target would ‘boost investor confidence’.

The Committee on Climate Change (CCC) has suggested that the target should be no more than 50g of carbon dioxide per kilowatt hour by 2030. Yeo said he would happily compromise with a target of 50 to 100g/kWh. The current figure is around 490g/kWh.

Another row over carbon targets is expected as Ed Davey, the secretary of state for energy and climate change, will announce the same day as Yeo whether the government will accept the advice of the CCC and include emissions from aviation and shipping in the UK's carbon targets. Many within the Conservative Party are opposed to this, but it would be damaging to the Liberal Democrats if Davey was to overrule the committee, the statutory body set up to advise ministers on how to meet long-term carbon targets, on this issue.

Fuel poverty set to rise

‘Inadequate’ Government policies blamed for increase in households struggling to pay bills

Christmas will be a difficult time for a lot of families as reports suggest another 300,000 households will be plunged into fuel poverty following recent price rises.

The independent Fuel Poverty Advisory Group has warned that nine million homes could be hit by fuel poverty by 2016 and have blamed the Coalition government for doing very little to ‘soften the blow’ of initiatives such as implementing green measures, which could add nearly £100 to the average energy bill, and getting firms to insulate the roofs of poorer customers’ homes, which will add another £100. With these measures, along with the recent price increases from the major energy companies, the average annual energy bill will be around £1,365.

More and more people are struggling to pay the bills to keep their homes warm

(Image source - The Mirror)

A policy announced by the Government which will limit the amount of tariffs energy companies can have and will force companies to offer customers the cheapest tariff has been criticised, as many believe it will actually cause prices to rise because it will effectively end competition for cheap deals and will stop customers switching tariffs regularly.

It has previously been suggested that nearly 90% of people will ‘ration’ their energy this Christmas in an attempt to save money, with elderly people more likely to do so, and more likely to suffer because of it. This Christmas, it is feared that fuel poverty will be directly responsible for over 2000 ‘excess winter deaths’, with that figure looking increasingly likely to rise as winters get colder and prices get higher.

Why hasn't solar taken off?

Form of renewable energy isn't as popular as it could be

Earlier this week, the chief executive of Desertsec Paul van Son denied his plans for a scheme to produce 15% of Europe’s energy from solar panels in North Africa was in turmoil following the withdrawal of two major investors. Both Siemens and Bosch pulled out of the project, which would see energy produced by solar power in countries such as Tunisia and Morocco relayed to Europe via underwater cables, whilst the Spanish government has backed away from a deal to build the panels. Despite these apparent set-backs, van Son laughed off suggestions the €400 million scheme was in crisis. But does this situation suggest that solar power has still yet to really take off as a form of energy production?

An outline of the Desertsec energy proposal - which may now be in doubt

(Source - The Guardian)

Solar power seems like the ideal form of renewable energy. Even more straightforward than wind power, all you have to do is watch as the sun shines and produces electricity. But despite this seemingly simple process of producing energy, solar has yet to really go mainstream. Whereas wind power is gaining more and more momentum as the answer to the question of how to produce clean, renewable energy, solar power is getting left behind. But why is this? Why haven’t we committed to solar yet?

Cost. Installing solar panels in a home can cost nearly £9000 on average; a price a lot of people aren’t willing to pay, especially as it may also require adjustments or renovations of the roofs of houses, which adds further costs. Many people could have had help covering costs via a grant, but last year the Government cut the Feed-In Tariff (FIT) by over half, meaning people who could have earned money for merely having solar panels (up to £1000 a year in many cases), which would have helped cover the cost of the initial installation, will now earn significantly less. 

Solar power is a great form of renewable energy - but people don't like the cost

(Source - The Guardian)

On top of all this, it has been announced that energy bills will increase to cover the costs of implementing green energy schemes, such as solar power. Any form of price increase is bound to anger consumers and, despite the assurances that using renewable energy will actually decrease prices in the coming years, the new deal has been met with criticism from consumers, MPs and environmental campaigners. 

So with the current negativity surrounding renewable energy in the media – mainly focusing on the cost – it seems that solar power has an even harder task of trying to appeal to people as a realistic alternative to traditional energy production.

Have energy companies been rigging prices?

PM threatens heavy fines for companies found to be manipulating market

David Cameron has called for heavy fines against all energy companies that are found to have rigged gas prices in the UK. 

The Prime Minister’s view comes after the Financial Services Authority announced an investigation into several major power companies that are accused of manipulating the wholesale gas market in Britain. Nick Clegg, deputy prime minister, backs Cameron’s stance, saying that consumers would be ‘rightly dismayed’ if the allegations of price rigging are found to be true.

Many of the companies accused of price rigging increased their prices last month

(Source - The Telegraph)

The FSA launched their investigation after word of ‘unusual trading patterns’ was revealed by whistle-blower Seth Freedman, who worked as price reporter at ICIS Heren, a company who set benchmark prices that wholesale gas contracts are based on. ICIS Heren reported to energy regulator Ofcom concerns about suspect trading on 28th September, which is the date of the end of the gas financial year and therefore an important influence on future gas prices.

This investigation will do little to improve the strained relationship between the energy companies and their consumers, which was already damaged following last month’s gas price hike.