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Stable energy prices and no energy efficiency: A closer look at Npower’s energy bill estimates

  • 16 Jul 2013, 14:35
  • Mat Hope

Credit: Npower

Energy bills are going to rise, and it's mainly the government's fault - that was the core message of a number of articles covering a new report from energy company Npower  this morning.

Npower claims household's will paying £156 more in 2020 for gas and electricity than the government predicts. The main reason, it says, is government policies designed to promote a transition to a low carbon economy. But the government has rejected Npower's projections, with climate change minister Greg Barker maintaining the policies will save households money in the long run.

So how do the predictions stand up? How do they relate to other estimates of how your energy bill is going to change? And most importantly, what are the assumptions?

Energy bills in 2020

Npower says an average household will be paying £1,487 for energy in 2020. That's £156 more than the government's £1,331 projection.

Why the difference? The table below shows how Npower and the government expect bills to be broken down in 2020: 

DECC vs Npower 2020 bills

While the categories in Npower's report don't directly match the government's, there are two areas where they obviously disagree: The impact of government policies, and the future cost of fuel.

Energy policy impact

The amount of money households are expected to save due to government policies makes up the biggest difference between the two projections. Npower says the government's predictions for how much people will save from energy efficiency are based on some "heroic"assumptions. Npower takes the opposite approach, assuming that household energy demand will be exactly the same in 2020 as it is today.

Npower says government policies will account for £329 of a household's bill in 2020 - 78 per cent more then they account for today. The government, in contrast, says its policies will save households £166 overall by 2020.

The Department of Energy and Climate Change (DECC) expects households to save through energy efficiency measures such as wall insulation and installing more efficient boilers. But many of those measures are promoted through the Green Deal, which has so far been slow to catch-on.

DECC also expects savings because of the EU products policy, which encourages energy efficiency. This should mean that as consumers replace their washing machines, televisions and lighting, the new models use less energy. But the savings don't kick in while consumer are using old appliances. DECC says it uses standard figures for the rate at which consumers tend to replace electronics, but not everyone is convinced.

While DECC may be optimistic on some measures, Npower might be pessimistic on others. A footnote on page 5 of Npower's report suggests it uses energy regulator OFGEM's household gas and electricity consumption estimates for 2013 in every year of its projection. That would mean energy demand doesn't ever reduce, implying the government's energy efficiency schemes have no affect at all.  

The table below shows how Npower and the DECC expects policies to effect bills: 

DECC vs Npower policies

Fuel costs

OFGEM has previously said it expects the rising cost of gas to be the main driver of energy bill increases. But Npower believes fuel costs will remain stable.

Npower expects gas prices to be pretty similar in 2020. See their projections here:

Npower fuel projections

The government disagrees. It predicts the cost of gas will increase by 5 per cent from today's levels to 2020.

Npower predicts fuel costs will eventually fall as more renewables come online, reducing the the UK's reliance on volatile coal and gas markets.

This would largely rely on the government successfully incentivising wind, solar and hydropower development - as Npower acknowledges. While Npower thinks the government's energy efficiency policies won't work, it seems to think its renewables policies will.

Not Npower's fault

Appearing on the BBC's Today programme this morning, Npower's chief executive, Paul Massara called for a more mature conversation about future energy costs. The main thrust of his argument is that rising costs will largely be beyond suppliers' control, despite what the public may think.

Npower's projections places blame for the cost increase at the government's feet, based on an assumption that energy efficiency policies won't deliver any reduction in demand.  This is not the first time the argument has been made, and the general view seems to be that it has some merit. Slow take-up of the Green Deal programme will only reinforce that view.

But coming from one of the big six power companies, this report may be an effort to shift blame for price hikes away from energy company profits and back onto the government.

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