Copenhagen is the worst place in Europe. The Serbian capital Belgrade is the best place by a factor of almost five. Judgements based on the price of residential electricity supplies may not be the fairest way to appraise the virtues of Europe’s great cities but they illustrate how the disparity in energy pricing might be misrepresented. It’s a significant issue given the political thrashing around between the UK government and the opposition to find perceived unfairness in household energy bills that can be eradicated by a sweep of the policy hand.
Politicians and the media have questioned:
- the extent to which wholesale costs govern retail price increases;
- the level of “green taxes” included in energy bills that cover subsidies for renewables and energy efficiency measures;
- the profit margin taken by the suppliers; and
- the component in bills that covers network costs.
Figures reported by consultancy Vaasa ETT in its Household energy price index published in October indicate the spreads in residential prices paid in different European countries which are sometimes, but not always, substantial. They show also the variations in the proportions of the component costs that go into the bill which also include examples of outlying cases large median populations.
The Vaasa ETT study compares residential energy supply prices paid in European capitals as at September this year. The headline prices paint a version of events that shows British residential power prices are about 15 per cent below the European average. Green taxes are at close to the mean across the continent while wholesale costs are, as a proportion of the consumer’s bill, among the highest. And network costs are below the average in their part of the bill.
For gas Britain’s prices are among Europe’s lowest third at 20 per cent below the average with wholesale costs in the highest 20 per cent. Green taxes and network costs are very close and at the average respectively.
And Britain charges the lowest VAT rate on energy.
Overall this is a supportive picture for UK energy companies – not much for politicians to shoot at.
Two countries stand out on electricity price with bills that more then 50 per cent greater that the average. For those countries – Germany and Denmark – green taxes make up a huge chunk of the bill: some 36 per cent of the price of electricity in Denmark – three times the European average – and 56 per cent with VAT. Green taxes in Germany come to 28 per cent. Adding VAT takes the tax burden to 44 per cent.
And Vaasa ETT found that the highest gas prices are paid in Stockholm – almost double the second highest (Copenhagen) and three times the average across 22 European countries. The significance of the gas price in Sweden’s capital is put in to perspective by the fact that hardly any household in Sweden uses gas. The second highest bills are Copenhagen’s again with a 56 per cent tax component
On applying a compensation factor to energy prices to balance out differences in currencies’ purchasing power – the purchasing power standard (PPS) – countries’ rankings shifted substantially in a few instances (Table 1, below). PPS is a device developed by the EU statistics office, Eurostat.
Applying the PPS shifts the Central and Eastern European countries from the lowest price grouping in electricity and gas to one of the highest priced sets for each market. Otherwise the movements on adopting PPS in gas are zero or one quartile for most countries with a few more two quartile shifts in electricity. So the impact of applying PPS was limited for most European countries although Britain moved a few places down the price ranking in electricity and fell to second lowest in gas.
Once VAT is added to the mix along with transmission and distribution costs the proportion of costs attributable to wholesale energy ceases to be the largest slice of the power bill for all but four countries: Ireland, Britain, Italy and Greece. In gas the fuel cost makes up the majority of the bill in only half the countries in the report.
Green levies in Britain account for 11 per cent of the average electricity bill and 6 per cent of its gas counterpart according to energy regulator Ofgem. Vaasa ETT arrived at very similar figures.