How to deal with high – unaffordably high for many – energy prices has already proved itself a thorny and emotive issue.
As the winter sets in, the cost of energy will only get more contentious. Sadly for politicians – even those trying to win votes on the back of seemingly tough policy – there is no silver bullet.
We saw this last week when Chancellor George Osborne used his Autumn Statement to wipe £50 off annual household energy spend through the lifting or spreading out of levies currently recouped through energy bills, specifically the Energy Company Obligation.
This brought an – albeit muted – welcome from some quarters, while others criticised the effect on fuel poor households. The Guardian reported the following from Fuel Poverty Action’s Clare Welton: “Osborne is axing insulation for tens of thousands of the poorest households, condemning thousands of families to cold and damp homes with unaffordable high bills for decades, whilst allowing the big six to continue their profiteering just a week after a huge rise of deaths from fuel poverty have been reported.”
This split reaction is echoed even within the utility industry. Utility Week and research partner Accent asked our Senior Executive Panel – comprising energy and water bosses and other senior industry figures – for its views on energy prices and political intervention. Consensus on any sort could only be reached on a couple of issues.
The price of energy
First we asked if energy prices were unjustly high. There was a relatively even split with 39 per cent answering in the affirmative and 44 per cent in the negative. The rest were unsure.
In support of the yes vote, one executive says: “There are many games played by the energy companies moving profits between the different parts of the business and there is very little transparency on their margins. There are no doubt significant investment requirements to develop sustainable energy sources but they are hiding behind this argument to do very nicely.”
On the other hand Steve Johnson, Electricity North West chief executive, believes: “Prices reflect wholesale prices, green levies and transportation costs. Greater clarity in the makeup of the price will help.”
Exactly half of our executives believe political intervention of some kind is needed to reduce energy prices for all. One suggests suppliers have almost brought political action on themselves by blaming high bills on government policy. “Energy companies blame government ‘green taxes’ for high prices – along with high fuel prices,” he says. “Given that oil and gas prices are outside of the UK’s influence (at the moment), the only mechanism for price movement is the proportion that is set by government.”
The need for political intervention
However, just under half (44 per cent) don’t feel political intervention is necessary. Asked why, one executive comments: “I have seen no thought-through case that such an intervention will produce better results in terms of prices and reliable energy supplies and meeting sensible environmental targets. The politicians are grandstanding rather than providing leadership.”
Panellists’ views on the various specific intervention strategies suggested over the past few months to make bills more affordable are polarised, as the graph shows. The only one that unites opinion – against it – is Ed Miliband’s pledge to freeze energy bills should he win the next general election.
However, there is widespread support for scrutinising the level of competition in the energy market. Seventy-two per cent of executives support the government’s plan for annual energy market reviews, while nearly as many – 67 per cent – support a full Competition Commission referral.
There is also widespread support for beefing up help for those who struggle to pay their bills. Eighty-three per cent of panellists say there should be more targeted assistance for the fuel poor. Of that number, 39 per cent say funding should come from the taxpayer; 17 per cent support paying for fuel poverty schemes through carbon tax revenues; 11 per cent think VAT revenue from higher energy prices would be the best funding source; and only 6 per cent believe it should come from energy customers’ bills.
One executive says: “All participants in the energy sector have a part to play, including distribution companies. Greater communication and direct assistance from all companies would assist reducing fuel poverty.”
We had a few suggestions on how best energy prices for all should be cut. One executive suggests: “Greater measures to enhance competition and position of new entrants.” Another thinks: “If suppliers remain in charge of retrofitting schemes, their price increase should be tagged to their performance in increasing the energy efficiency of households. Poor performance in efficiency would then be penalised.”
Rob Sheldon, managing director at Accent, observes: “This is a really interesting time in the energy market and there are plenty of twists and turns to come yet.”