npower comparison - Price Rises Explained
Following complaints from Ofgem (the UK energy regulator) The European Commission, is investigating why wholesale energy prices in the UK have risen so steeply. It recently concluded that one factor was that big energy suppliers on the European mainland, many of which are national monopolies or semi-monopolies, have been holding back supplies of gas, thus driving up prices. The EU competition authorities are now investigating individual companies to see what they have been up to and why. The significance of the behaviour of European gas suppliers is that in the last couple of years, the UK has become a net importer of gas, as the country's own supplies from the North Sea have dwindled faster than originally expected. The price of gas imported from Europe has also been driven higher by the rising cost of oil because on the continent, contracts for the supply of wholesale gas have traditionally been linked to oil prices.
The energy companies blame the high price of oil. In Europe, as mentioned earlier, gas prices are linked to the price of oil, so they have risen strongly. Because almost half of Britain's electricity is generated by burning gas, there has been a further knock-on effect. Since October 2003, prices have gone up by more than a third for gas and electricity. Last winter, based on Ofgem's average consumption of 20,500 kWh for gas, the energy regulator said customers had paid £5.2 billion more on fuel bills than the year before. This has pushed around 200,000 homes back into fuel poverty - which is when a household cannot afford to heat itself properly. The government has pledged to eradicate fuel poverty by 2016. The price rises have been driven by the price of gas, resulting in a smaller increase in the price of electricity (only 30-40% of electricity is generated from gas). Electricity will always be more expensive per kWh than gas due to the inherent inefficiency of thermal power generation.
So is the current price rise going to be as temporary as the previous price fall? Comparing prices in the UK with others in Europe shows the UK isn't any more expensive, even after these rises so perhaps the aberration was really the low prices at the start of the decade.
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