The big squeeze: Gas price rises are slowing down, but don’t expect lower bills
- 14 Sep 2012, 11:30
- Christian Hunt
Average consumer energy bills have remained largely unchanged over
the past year, according to
new figures from energy regulator Ofgem. But, as rising gas
prices and the costs of upgrading the energy network, it's probably
not going to last.
The figures show that some of the costs which make up the average
household's £1310 combined gas and electricity bill have risen over
the past year. Because of this, energy company profits have gone
down. But they are likely to rise again as energy companies put up
their prices, following the
lead of SSE - which announced it would increase consumer energy
prices by nine per cent from next month.
Gas price keep going up - but more slowly
Consumer bills keep going up, but not as fast as they have. The
the wholesale cost of gas in the average consumer gas bill has gone
up £25 over the last year, according to Ofgem. This is a slower
rise compared to the previous year, when the amount the average
household paid for gas rose by £80 - possibly due in part, however,
to milder winter temperatures in 2011/2012.
What else makes up our energy bills?
Other costs - the costs of environmental policies and "extra costs
covering meters (installation and maintenance), storing gas,
balancing the electricity system and social programmes like the
Warm Homes Discount" - went up by £15 between September 2011 and
September 2012.
It's not clear - because Ofgem doesn't break it down - how much of
this is due to green policy measures and how much to other issues.
The most recent Ofgem assessment of how much environmental policies
are contributing to energy bills was made this May - the regulator
concluded that environmental costs comprised 4 per cent of an
average gas bill and 10 per cent of an electricity bill, amounting
to about £75. This doesn't include the costs of the European
Emissions Trading Scheme, which probably amounts to another £20 or
so, according to
Department Energy and Climate Change figures from last
year.
Power company profits fall, but probably not for
long
According to Ofgem's calculations, the net margin for a power
company - roughly indicative of the amount of profit it makes from
an average customer - fell from £85 in September 2011 to a rolling
average of £40 in September 2012. This rolling average figure is
calculated over a year - the past six months, and the forthcoming
six months.
Ofgem predicts that power company profits will rise in the short
term, as bills rise again:
"We expect the snapshot margin to rise
to around £65 over the next three months. This is largely a result
of a change to the future retail bill (SSE announced it will
increase its gas and electricity prices by an average of 9% on 15
October). However there are many uncertainties, not least continued
changes in wholesale prices, which could affect this estimate of
snapshot margin."
Many commentators think that other energy companies are going
to follow SSE's lead in increasing bills, but uncertainty about
whether power companies will raise bills, and how quickly, means
that Ofgem doesn't make firmer predictions about the long
term.
When SSE
raised its customers' bills last month it laid the blame on the
rising cost of using the energy networks, the rising price of
wholesale gas, and the rising cost of environmental and social
initiatives - particularly the energy efficiency measures known as
the Carbon Emissions Reduction Target and the Warm Homes
Discount.
Putting up prices also allows energy companies whose profits are
being squeezed by rising prices to recover their profit
margin.
Ofgem's assessments of bill costs are generally regarded as the
most solid available. The figures demonstrate that the wholesale
price of gas is continuing to put upward pressure on fuel bills.
Likewise, to a lesser extent, changes being made to the energy
system are also pushing bills up. Rising costs squeeze power
company profits, which will sooner or later inevitably lead to
price rises for consumers.