Energy market and fuel costs examined by Andrew Neil

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.

Andrew Neil Article written by Andrew Neil Andrew Neil Daily and Sunday Politics

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  • rate this

    Comment number 6.

    Another very poorly researched contribution from Andrew Neil on climate change policy. Perhaps he could have consulted Ofgem to check his logic. Here is what Ofgem said on Friday: "Higher gas prices have been the main driver of increasing energy bills over the last eight years."

  • rate this

    Comment number 5.

    'I'm not sure the picture is quite as they say.' You don't say,Sherlock. Energy prices are the one thing that worries me in the current financial climate.I am sure you are right in your analysis but the thing is we,the public,can never get a straight answer from government or the energy companies.We need a mechanism where gov/companies HAVE to give answers to relevant questions.

  • rate this

    Comment number 4.

    Hasn't the government got a conflict of interests? The more the big 6 charge us, the more tax the government rake in? So where is the government incentive to have them reduce their charges? Isn't the government looking into discounting various insulation & energy efficiency schemes just them using the green band wagon to "appear" to be doing battle with the big 6 on our behalf?

  • rate this

    Comment number 3.

    This should be understood as part of a bigger picture. It is all about driving people out of bigger homes, or homes which are deemed to be larger than an individual needs, or can afford. It should be read in line with the current demographic situation. The post war baby boomers getting to retirement, or aged unemployment. It goes back to the unsustainable argument, living beyond our means

  • rate this

    Comment number 2.

    This needs a good graph hey presto:
    Oh look, the public has been ripped off for almost three years.

  • rate this

    Comment number 1.

    The big 6 operate a forward contract and hedging strategies that may lag price rises and falls to mitigate future risks so your arguement is meaningless.

    I suggest you look through their accounts to see how much money was withdrawn from the business in dividends. This is the ammunition you need.

    If you would like a proper researcher give me a bell.


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