Energy Prices Set to Rise as Risk of Power Cuts Increases

Already it has started. First the rumours of an energy price increase have gathered momentum. Although most energy companies have rules out an increase for the rest of this year, unless you have fixed your energy price, expect a swinging increase in gas and electricity bills from January onwards. There are probably several reasons why you should expect a price increase.

  1. Natural gas prices remain linked to oil prices and as the world come out of recession demand for natural gas and oil will increase. Most of the UK’s electricity is generated by natural gas. Most of the UK’s heating is provided by natural gas.
  2. Natural gas remains a regionally priced commodity whereas oil is an internally price commodity. Most of the UK’s natural gas comes from European sources, as natural gas production in the North Sea declines.
  3. As with any regionally priced commodity prices are high when demand is high and low when demand is low. Demand is always higher in winter, and there is still very little natural gas storage in the UK. We and the energy companies therefore los the opportunity to buy and store natural gas in summer when the prices are low.
  4. We have been reducing the “spare” electrical generating capacity for many years. If we are to avoid the possibility of power cuts we ought to have a “spare” capacity of around 50%, so as to cover for a very cold long winter. At the moment we have about 14% spare capacity and OFGEM, the regulator, expects this to fall to 4% in 2015.
  5. We have closed our coal burning power stations rather quickly, and although OFGEM appears to blame EU legislation for this, the truth is that the UK has been rightly closing coal burning power stations for years. What the government have not done is to build sufficient new power stations. I know that many think that governments in the UK do not build power stations – that is the job of the generating companies – but in truth the generating companies will only build power stations if they receive huge government subsidies. The government has very little tax payers’ money left and therefore no there are no subsidies as one by one the generating companies refuse to take the commercial risks of building new nuclear power plants.
  6. There has been insufficient investment in energy saving; the energy we require each year will be significantly less in terms of that required for space heat if we required all buildings to be properly insulated.
  7. Investment in renewable energy has been, so far, in the wrong kind of renewable energy. We have wasted much money on wind farms and photovoltaic panels which produces little effective energy saving because electricity cannot be stored but have not spent anything on solar water heating, a simple and effective technology where the energy created can be stored until it is need.

All of these factors will mean that energy – both heat and electrical – will come in increasingly short supply, which creates a perfect situation for the energy companies who can all raise their prices for something that we need and cannot generally buy elsewhere except in the case of solar water heating, where we can but the power plant and install it on our roofs.

The taxpayer will pay in higher energy prices and will risk power cuts in very cold weather, because successive governments’ failure to develop a sensible energy policy.