Excess Big Six profits are real, but the main problem is still the wholesale gas price

The figures released by Ofgem today should in no way create the sense that the price of wholesale gas is not the main cause of rising energy bills.

New data from Ofgem shows that while energy consumers have been hit by price increases of up to 11.1 per cent over the past year, wholesale prices have risen by just 1.7 per cent.

Mark Ferguson at Labour List has some helpful graphs showing the extent of the discrepency between the prices the Big Six energy companies are charging their customers and the wholesale price of gas on the open market.

The second graph shows the difference between the average profit made on a household bill this year compared to last.

Gas price2

There is certainly a case to be made that the Big Six are making excessive profits at the expense of consumers. This is typified by Scottish Power, which last week announced that it is to put up the price of its gas by 8.5 per cent and electric by 9 per cent from 6 December.

Predictably the company blamed ‘green levies’ for the increase; yet last year the company more than doubled its pre-tax profits to £712m, with the company’s chief corporate officer Keith Anderson pocketing a £129,000 bonus – taking his total pay for 2012 to over half a million pounds.

Despite the execrable profiteering on behalf of the energy firms, we shouldn’t kid outselves, however, that the price of wholesale gas is not the main cause of rising energy bills.

As Ofgem’s date shows, it may not have risen as much this year as the average price rise, but over the long-term the price is creeping up, which is having a knock-on effect on household bills. As Donna Hume of Friends of the Earth has pointed out, in the last eight years energy bills have risen by £520, and the Committee on Climate Change says that the vast majority of this has been because of the rising price of gas.

Wholesale gas

This is why the creation of a fossil fuel free power sector through the 2030 carbon target is so important, as it would free customers from the volatility of gas prices as well as help to save the planet.

Claims that the target would dramatically increase bills are also incorrect. The Committee on Climate Change has calculated that supporting low carbon development in the 2020s would only add £20 to bills by 2030.

It found that over the long-term opting for almost carbon-free power by 2030 would cost consumers £25-45 billion less than embarking on a new dash for gas. With a high gas price, consumers could save £100 billion.

Even former Tory minister Lord Deben has called out his party for scaremingering over the 2030 Carbon Target:

Lord Debden

Which was in reply to this:

Tory energy

The Energy Bill returns to the House of Lords today, providing another opportunity to insert the 2030 decarbonisation target for the power sector into the Bill.

One Response to “Excess Big Six profits are real, but the main problem is still the wholesale gas price”

  1. Chris Lovett

    How is it that the CEO of OVO, my own supplier, has said that wholesale prices have NOT risen over the last 6 years?

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