Energy market and fuel costs examined by Andrew Neil

  • 19 October 2011
  • From the section UK Politics
  • comments
Chris Huhne
Andrew Neil examines the words of Chris Huhne

Energy Secretary Chris Huhne says that our fuel bills wouldn't rise so much if we could wean ourselves off ever-rising fossil fuels.

The big power companies say they've had to hike our gas and electricity bills because of rising global energy prices. I've been looking at energy prices and I'm not sure the picture is quite as they say.

Broadly, wholesale gas and electricity prices have moved in tandem. The wholesale price (what the energy companies pay) of both shot up in 2008 to a new peak.

Retail prices (what we pay in our fuel bills) quickly followed, also to a new peak.

But wholesale prices fell back from the end of 2008 and continued to fall throughout 2009 roughly to previous levels before the 2008 spike.

Retail prices dipped a little too but still remained well above the level they were at before the spike. In other words retail prices followed wholesale prices on the way up -- but not on the way down.

Gas hob
Questions over claims that higher fossil fuel prices explain current very high energy bills

Wholesale prices started rising again through 2010 and into 2011. But only modestly. Today they are still well below their 2008 peak.

But retail prices have risen again and are now above their 2008 peak. Despite lower wholesale prices compared with three years ago our fuel bills are higher than three years ago.

So, contrary to the Energy Secretary's position, higher fossil fuel prices cannot explain our current very high energy bills. And, contrary to the energy companies, they are not merely passing on the extra wholesale costs of energy.

Two further thoughts. It is clear that the energy market is not functioning like a proper competitive market, otherwise retail prices would not just go up in line with wholesale prices but come down too.

And maybe the Huhne green agenda, involving huge subsidies to wind generation, which end up on all our fuel bills, is much larger than we've been told.