Energy prices and the energy price pyramid

The scandal of the poorest people in the United Kingdom paying the highest rates for their gas and electricity keeps hitting the headlines but apart from hitting the headlines nothing seems to be done about it. Last week the Government said that it would intervene if there was evidence of unfair pricing differentials between different payment methods. Of course there is plenty of evidence. It exists in the public domain and I do not understand what further evidence the government needs in order to act. Continue reading

Insulating the nation – who will pay for it?

The Government is intent on insulating the nation. They have announced what they describe as a £1 billion package which will help people save money on their fuel bills by loft and cavity wall insulation. That will take the United Kingdom’s spend on insulation to outweigh all other home improvement spends by a huge margin.

Up until now, the existing insulation schemes were paid for by the energy consumers who have a percentage added to their fuels bills.  Continue reading

Energy prices spiral, fuel poverty increases – time to rethink fundamentals

As energy prices continue their upward spiral hundreds of thousands of families are now spending a huge share of the income on energy. Once this share goes above 10% of the income the family is said to be in fuel poverty. The UK are under an obligation to abolish fuel poverty, because it is scandalous that anyone in a civilised developed and wealthy nation should suffer from hypothermia or be without energy, in the same way that it would be scandalous if people in the UK were starving. Continue reading

New measures to deal with fuel poverty will make no impact

When you get your next gas bill or electricity bill or have to pay at the petrol pump you will find that the money you spend will be much more than you have budgeted for. In most cases we have to grin and bear it and think about what economies we might have to make. Perhaps we will buy fewer clothes, or take a cheaper holiday or not replace that aging computer.

If you are one of the four and a half million people who spend more than a tenth of their income on energy, your choice is going to be much more limited. You are at the mercy of the markets. You probably do not have things like new clothing, holidays and computers in your budget. There is nothing to cut down on, except food and energy. Continue reading

Gas bills – time to change the pricing structure

My gas bill came through the letterbox yesterday, and I thought I had better look at it.

My bill told me how many “units” I had used. Units are the measurement of gas at your gas meter. These are converted into kilowatt hours by first finding out how many cubic metres of gas your units represent. More modern meters already show readings in cubic metres; if you have an older meter you will have to multiply the units by 2.83. Once the volume of gas used is established from the meter reading, the utility company establishes how many kilowatt hours of energy this constitutes.

They have to do this because the energy contained in natural gas varies and to find the actual energy you have to take into account temperature, pressure and calorific value. My gas supplier multiplied the cubic metres by 1.02264, then the resultant figure by 39 (the calorific value) and the divided by 3.6 which gave the kWh I used. I was then charged for the kilowatt hours that I have used, after value added tax at 5% is added to the bill.

The value added tax rate is exactly the same for gas and electricity as it is for buying a installation of soalr panels, or PV or a wind turbine. Reducung it to 5% is one of the great triumphs of Gordon Brown’s chancellorhip – puting microgeneration on the same footing as fossil fuel energy.

There are many different gas tariffs but in my case I pay a higher rate for the first 1303 kWh used each quarter, and a lower rate thereafter. In my case the higher rate is 4.339p per kWh and the lower rate 2.39p per kWh. Some tariffs provide for a standing charge before you consume any gas at all. 

I think that tariffs that charge less per kWh as you use more gas penalise the people who pollute the least and that must be wrong. Consumption of any item is encouraged by offering a cheaper unit price for that item. If you go to your local supermarket you will see offers such as “two for the price of one”, “buy one get one free” but if you only want or need to buy one you rarely see it offered at half price.  

The idea behind this “bogof” marketing is to encourage more purchasing and in the case of a supermarket it does encourage us to buy more than we planned. Unfortunately a significant portion of the food special offers that we buy are thrown away, unconsumed, to add to the piles of land fill rubbish for supermarket’s increased profits and at the impoverishment of our environment. 

There are over 2 million pre payment gas meters in the United Kingdom. These service the poorest people.  Those who use the most gas can usually get the best deals. Those who can only afford to use a little gas get the worse deals. If you live in a mansion you can buy your gas at bargain basement rates, but if you are poor you pay the highest rates. 

We do not need to encourage the use or gas or electricity. We should not offer 2000 kWh for the price of 1000 kWh. Quite the reverse, we need to discourage the use of all fossil fuel energy. If we fail to do this we add to the climate change problems that we will invariably face at some time in the future, we add to the depletion of fossil fuels before we have found viable alternatives and we add to atmospheric pollution. 

So, it would make much more sense if all gas tariffs were at a very low rate for the first, say, 2000 kWh per quarter and a higher rate at the next 5,000 kWh and so on, charging more per unit of energy the more energy that you use. This will also encourage the take up of thermal solar systems (like those that my company Genersys sells), and if adopted for electricity tariffs as well as gas tariffs would encourage all forms of microgeneration. 

It will be difficult to change to these tariffs that penalise those who use the most energy in a competitive market, but Nicholas Stern has pointed out that climate change involves a fundamental failure of markets. It seems logical therefore that If markets fail we need to establish alternative structures that work, so it is probably about time to get rid of the utility companies as free market entities.