Harrabin's Notes: Rising prices
- 7 July 2011
- From the section Science & Environment
In his regular column, BBC environment analyst Roger Harrabin looks at the effects on energy bills as renewables become a bigger part of the UK's energy landscape.
How will poor people cope with energy bills as the UK strives to meet its EU target of 15% of energy from renewable sources by 2020?
It's a question that's been raised by the CEO of Centrica, various economists and anti-green campaigners. And it'll doubtless be asked when the government shortly unveils its Energy White Paper.
But it's not quite the right question - for three reasons.
First because UK energy costs will go up anyway as we replace our ageing fossil fuel power fleet. It is yet another example of how we've been free-loading off the capital investments made unwittingly by our parents and grandparents - and now we have to fork out.
This is clearly a problem as uSwitch note that 25% of people already have difficulty paying power bills already.
The second reason why the question is wrong is because no one I know outside government expects the UK to meet the renewables target anyway. My view is that ministers are keeping the target in place because if they drop it the schedule will fall even further behind.
The third reason is that energy prices are based on a complicated mix of factors.
Although an over-hasty rush for renewables will definitely land people with large bills, most analysts seem to agree that a good proportion of renewables in the mix is helpful in the long term.
That is because it buffers households against the sort of prices spikes we would likely see if we were over-reliant on gas, which is subject to shocks as diverse as the Middle East Spring and the Fukushima nuclear crisis.
In this way renewable power can be seen as something like a fixed rate mortgage in which you maybe pay more, but you know that you can budget for it on a monthly basis.
So, what are the implications for prices in 2020? It's a question I emailed to 30 experts. Perhaps not surprisingly I got very few replies. Most weren't willing to speculate.
Take this response from the veteran energy analyst Walt Patterson: "Everyone will be guessing (about future prices) and their guesses will depend on what they think policy should be. The legendary head of the Irish Electricity Supply Board, Patrick Moriarty, used to say: 'The price of electricity is what the government wants it to be'. That's still true."
But official bodies have to produce numbers - so some figures are available. The Climate Change Committee estimates that bills in 2020 may rise about 25%. The regulator Ofgem has a wide range of figures, largely dependent on the price of gas, stretching from 14% to 52%.
Sam Laidlaw, who runs the energy giant Centrica (which runs British Gas), told the Economist Energy Summit recently that his polling showed consumers weren't willing to face a 50% rise in bills - they would rather risk the lights going off.
It would be a brave government that tested the resolution of the public on future blackouts - especially as we are so plugged into our TVs and computers.
But Ofgem tell me that Sam Laidlaw's analysis is somewhat misleading anyway as their 52% top end prediction was only in the case of a sudden price spike - they didn't expect it to continue for any length of time.
But whatever the price rise, it is clear that the government faces continuing controversy over bills, especially if - as widely predicted - its Green Deal for some insulation proves less successful than hoped.
The Consumers Association, the charity trading as Which?, will soon be starting a campaign on energy. I'd been told it was a campaign against higher prices but it's more subtle than that. Louise Strong from the association said they wanted to engage the public in more of an open dialogue.
People, she said, wanted to keep the lights on and have low bills, but people were also resisting onshore windmills which would bring them relatively cheap energy. This, Which? says, is a long-term conversation.
In the short-term, it says, there must be more emphasis on helping the growing ranks of fuel poor and they hope the Electricity Market Reform White Paper will take steps in this direction.
The White Paper certainly has many roles to play, including underpinning the government's low-carbon goals with clear signals to the renewable power investors, and to the nuclear industry.
It's all a very big ask - and perhaps hardly surprising that most of the experts I've spoken to about the proposed legislation don't have very high hopes.