Increasing energy prices - why they will rise and rise and what we can do about it

Natural gas and electricity prices will get higher. British Gas increased electricity and gas bills by an average of 15% this January and is now signalling further large price increases. It claims that its profits have been hit by a 92% increase in the wholesale price of gas in the past twelve months and therefore it will need to increase its prices to ensure that it does not lose money.

All of the energy supply companies in the UK are in the same position as British Gas. Electricity and gas are still cheap for consumers in the UK. Heating oil is now around 60p a litre, which in kWh terms must be the most expensive ever.

If one of the few energy suppliers feels that it needs to increase its margins to stay in business instead of cutting them to gain a market share then it is almost certain that conditions are such that price increases will be applied by all the energy companies soon. And again.

I am not sure just how much (if anything) can be saved by switching suppliers because the timing of price increases varies as do the various tariffs available to consumers. Natural gas, uranium oil and coal are all sources of fuel which provide heat and power for homes. All of these are now being used in increasing amounts across the world with the developing nations looking set to use more and more fuel as they become wealthier.

I cannot therefore see much hope of prices stabilising. In simple terms if China’s Gross Domestic Product rises by 10% each year then its demand on fuel will rise by at least that amount for China itself. The same applies to India, Pakistan and Brazil. Together these nations have over three billions of energy hungry souls – increasingly wanting electricity to power their new appliances and heat and cooling to provide them with the same standards of comfort that energy greedy developed nations have enjoyed for decades.

Furthermore, the world’s growth in fuel demand is compound – not simple. If world fuel demand grows at 10% a year (that figure is a guess not a researched based estimate) then assuming that mining and exploration costs stay flat fuel prices will double in real terms every seven years.

But it gets much worse than that. The sources of fuel are finite. We cannot rely on gas and oil exploration companies suddenly finding huge new deposits of fuel. I have no doubt that they have already picked all the low hanging fruits in the fuel orchards. If you factor in the increasing scarcity as well as the increasing demand you might well come up with impossibly high fuel prices which in turn create impossibly hard energy prices.

The four and a half million people who live in the United Kingdom today in fuel poverty (double the figure of just three years ago) would be joined by millions more. In such a scenario they would suffer more in winter and have difficulty in maintaining standards of hygiene and comfort and worse of all winter deaths would spiral.

Particularly at risk are those who are now in their forties. They not only have to save for their pensions and their old age care but now it looks as though they will have to pay significantly more of their income, just when they cease to earn it, on their energy costs.

We have a law that requires the UK to eradicate fuel poverty amongst vulnerable households by 2010 and in all households by 2016. These laws are meaningless as fuel poverty will increase, not be eradicated, and it rather shows the foolishness of legislating by targets without understanding the real world impact on the problem that you are trying to solve.

We can adopt the optimism of Mr Micawber who said “have no doubt I shall, please Heaven, begin to be more beforehand with the world, and to live in a perfectly new manner, if -if, in short, anything turns up”.

Something may turn up. One of the frequent questions in the numerous calls for evidence and consultations and in governmental inquiries that keeps cropping up is whether there is likely to be technological advances that would make renewable energy cheaper and more viable in future? Although something may turn up human experience shows that you cannot buck the laws of physics when it comes to energy and there is not such thing as a free lunch.

We have to understand and plan for very expensive energy on the basis that nothing will turn up. If something turns up we will have lost nothing in the meantime.

The only present viable plan is to install as many renewable sources of energy as we can especially microgeneration where we will not need significant supplies of energy to provide the heat and power that we crave. My feeling is that the Government regards microgeneration as too expensive. They commit almost immeasurably small amounts of our gross national product to it. They spend more on a few MP’s pensions each year. There is no Plan A - that leaves only Plan B – Mr Micawber’s optimism.

If you think that I have over egged the pudding when it comes to predicting energy prices, look at the problem as though I have over estimated the energy prices rises by 50% or 75%. There is still a great deal of hardship that will be caused by fuel prices.

As frightening and as dangerous as fuel poverty is, what I find more frightening and more dangerous is the effect on emissions that increased fossil fuel burning will have. Of course, China, Pakistan, India and Brazil are effectively outside the Kyoto framework. Fossil fuel burning on a world wide scale increasing at 10% or more very year will create tremendous environmental problems.

The irony is that our Government seeks to control our emissions by the same mechanism that has failed so badly in the case of fuel poverty – one of statutory targets, which is a beast without teeth and without limbs.

When he introduced the Climate Change Bill Mr Gordon Brown boasted that the UK was the first country to put carbon emissions reduction targets into law. It is not surprising that other nations have not bothered to legislate in these terms.

The Climate Change Bill is very much like the fuel poverty legislation which in turn reminds me of King Canute’s courtiers. The king knew the limits of his power and when his courtiers told him he could send back the tides he made them carry him on his throne to the sea and stay while he ordered the tides to retreat. He thus demonstrated the folly of believing that because you command it, it happens.