With public trust in energy companies taking something of a battering, they are launching a charm offensive. But npower’s latest attempt to explain the facts about energy appeared to be foundering this morning, as it took criticism from the energy regulator and government.
The company’s report, Energy explained, updates its projections for what will happen to consumer energy bills up to 2020. Bills are projected to go up, unsurprisingly, and the report explains why npower thinks this will happen. On this morning’s Today programme, chief executive Paul Massara argued that what npower is trying “give the facts so people can have an honest debate”, and rebuild consumer trust in energy companies.
But the energy giant was forced to change some of the cost predictions in its report after an intervention from Ofgem. The report has also prompted some confusing media coverage, and appears to contain some contradictions in its assessment of energy bills.
Bills going up
The Times reported on npower’s figures this morning, suggesting that consumer energy bills are “to hit £1,500″ by 2020.
However, this isn’t what npower actually say. The company predicts that the average consumer energy bill will go up to £1,330 by 2020, or £1,240 if the household installs energy saving measures:
Source: “Energy explained” – Npower’s predictions for the cost of a typical dual-fuel energy bill between 2007 and 2020 if the home’s energy demand remains unchanged between 2013 and 2030.
This is a change from last year, when npower’s predictions were higher. This may be because Ofgem has slightly downgraded its estimate of how much energy the average consumer uses, however.
Npower’s projections are also lower than the government’s. The Department for Energy and Climate Change (DECC) suggests bills will rise to £1,496 by 2020 without energy efficiency policies, and £1,331 with them – although the change in Ofgem’s figures should also bring this down slightly.
The cost of government policy
Npower argues that the cost of government policies will contribute to the largest part of the bill rise, making up £172 of a bill now, and rising to £308 in 2020:
Here, again, the actual numbers don’t appear to be that different from the government’s predictions.
DECC suggests, for example, that the main subsidies for low-carbon power will add £105 to the average consumer bill in 2020. Npower puts the figure at £82.
But there are some curious anomalies. First, DECC points out that some of the policies included in the list above won’t affect consumer energy bills. The Renewable Heat Incentive, for example, is paid through tax, not energy bills. And the Climate Change Levy and Carbon Reduction Commitment will only affect the bills of businesses, not domestic users, according to DECC.
Secondly, there’s the issue of energy efficiency. Npower suggests that levies added to bills to pay for energy efficiency measures will add £77 to bills by 2020.
These programmes are intended to pay for loft and wall insulation, and should ultimately reduce consumer bills by making energy use more efficient. That’s the argument the government makes, which is why it makes the slightly tortuous claim that its policies will reduce bills in the future compared to what they would have been without policies – even as bills go up.
But despite including energy efficiency measures as an extra cost to consumers, npower assumes throughout the rest of its report that these policies won’t reduce energy consumption or bills. The numbers it uses assume consumers use the same amount of energy per household in 2020 that they do in 2013.
Arguably, government has been over-optimistic about how effective energy efficiency can be to limit bill rises – and npower’s chief executive Paul Massara has highlighted the importance of energy efficiency in media appearances today. But including the costs and assuming the policies have zero effect, as npower have done in their analysis, seems questionable.
The cost of transporting energy
Perhaps most embarrassingly for npower, it’s been forced to change its estimate on the cost of transporting energy. These costs have been rising in recent years, as the network companies have to pay out more money to upgrade the ageing grid and connect up low carbon energy sources like windfarms – but there’s disagreement over how much.
In its report, npower suggests that the cost of transporting energy will rise from £233 to £314 between now and the end of the decade – a £58 increase:
This prompted a swift response from Ofgem last night. The energy regulator said npower’s estimate was “incorrect and misleading” – adding “it is disappointing that they [npower] did not engage fully with us” in calculating it.
Npower subsequently altered its figures, adding a rider to its press release. Its statement isn’t very clear, but it tells us it now accepts the cost of transporting energy will rise between £5 and £10 per customer between now and the end of the decade.
This would be roughly in line with Ofgem’s estimate – and a significant change from npower’s current figures. The regulator says the cost of transporting energy will rise by £15 over the next twelve months, and then remain stable until the end of the decade. There’s a good reason why Ofgem’s estimate might be more accurate: It sets price controls on the the costs of transporting energy.
Npower tells us it’s experienced some methodological problems, and it will publish an updated version of its figures tomorrow.
The reception the report has got perhaps demonstrates how quickly the media debate over energy policy is moving. It may be our imagination, but it seems that these days the energy regulator, politicians and journalists are more willing to challenge the analysis put out by power companies and government.
For energy companies that want to begin the painful process of restoring public trust in their services, that will probably lead to some quite careful thinking about how to engage with these debates.