Mail story on energy price rises ignores the role of spiralling wholesale fuel costs
- 12 Oct 2011, 17:00
- Robin Webster
Press coverage of energy bills and why they are rising has gone
a bit quiet over the last few weeks, but today the Daily Mail leapt
back into the fray with a page two headline - "
poverty" - followed up by the now-familiar
editorial protesting against the impact of "cripping green
levies" on hard-working families.
The article is based on a DeutscheBank report released on
Monday, entitled "UK Energy Bills: back to the 1970s". The 55-page
report appears to have been written for prospective investors in
the energy companies SSE and Centrica, and gives advice about how
energy prices, politics and policy are likely to impact on profits.
The big six energy companies are under scrutiny from regulators and
politicians. The report is in large part focused upon the fact that
wholesale prices, not an absence of competition between the energy
suppliers, is to blame for rising prices.
4 earlier this week, the report suggests that a quarter of UK
homes could be in fuel poverty by 2015 as a result of price rises
in energy bills, and reduced household incomes due to the current
economic downturn. 'Fuel poverty' is defined as spending more than
a tenth of their household disposable income on energy costs (full
This is a pretty shocking figure, and as the Channel 4 blog
reported, DeutscheBank hold green measures partially
responsible. A closer reading of the report however - and indeed a
quick glance at the other press cuttings - indicate that the Mail
has simply ignored a major part of the Deutsche Bank analysis which
doesn't appear to fit with their narrative.
Here's the Mail's framing. The first line of the Mail article
One in four households will be driven
into fuel poverty if the Government pursues controversial green
energy targets, ministers have been warned.
This is a very selective presentation of the report's findings.
In fact the report found - and states clearly in the summary - that
it is both the rising price of fossil fuels and measures designed
to encourage decarbonisation which will push up bills.
On fossil fuel costs, for example, DeutscheBank note that "In
the late 1980's and 1990's the UK was for the most part an energy
exporter rather than a net importer" but that
In recent years the UK has once again
become a nation dependent on imported fuel...our import dependence
is rising to levels seen in the early 1970's once again. This makes
it much harder for UK government policies to shield consumers from
exposure to international fossil fuel prices.
Fundamental analysis of gas supply and
demand by our Commodities Research team indicates that the surplus
of gas in Europe is likely to be eliminated by 2013, with a re-
convergence to oil-linked prices by 2014 ... higher European prices
will not be undermined by exports from North America or by
unconventional gas in Europe …This implies UK gas prices
roughly doubling from 2009/10 levels by 2014...Although
there is a mix of fuel use in the UK generation market, most
generation at the margin is gas-fired. This means that increases in
gas generation costs are reflected in increases in the UK power
price. [our emphasis]
In other words, they conclude that a significant proportion of
the predicted energy bill price rises will occur as a result of the
rising price of gas.
On the costs of green measures, the report suggests that the
(expected to be introduced in 2013) and measures designed to
encourage increased uptake of renewable energy over the next decade
will have an effect of raising electricity bills.
DECC have argued that increased energy efficiency measures will
largely counterbalance green costs, but like the Prime Minister's
DeutscheBank is "somewhat skeptical" of the Government's proposed
measures, pointing out of the
programme (intended to allow private firms the chance to offer
consumers energy efficiency improvements, which are then paid back
through installed payments):
Even if energy use does drop through the
Green Deal, this will not in the short term necessarily reduce
people's energy bills. It may merely change a proportion of the
bill from paying for energy to paying back a loan. Only once the
capital spend is fully paid off will the reduced energy use
translate into a more material reduction in people's bills.
The report examines "Abandoning the green agenda" as one of two
proposed methods for mitigating the price rise in energy bills -
one which the
told Channel 4 could "cut 15 percent from bills by 2015".
What this might do to bills in the long-term is a question that
seems to remain unanswered. Energy academic Rob Gross told the
"Cutting support for renewables would
slow down the UK's progress in reducing dependency on imported
It's worth bearing in mind that this report has been written for
investors in two energy companies - Centrica and SSE - and so its
message is built around how to maintain power company profits in
the context of rising bills and economic hardship.
The cost of energy bills is a live political issue which means
that this report is likely to be cited in the future. The kind of
selective presentation that the Mail have given it is unhelpful,
though, and we hope others using the report in their work will be
UPDATE A few minor edits were made to this blog at 5.45pm on
12th Oct following some comments which we received a bit