What puts up your energy bill?

Greenpeace UK's Damian Kahya investigates the reasons behind households' soaring energy bills.

 

By Greenpeace Energydesk’s Damian Kahya; this infographic and article were originally published on Energydesk’s website here


Cost of gas

The figures come from the energy regulator, Ofgem’s “supply market indicator” for March (shortly after the last major changes in bills). Between March 2011 and March 2012 bills rose by around £150. Around £100 of that was due to the higher wholesale cost of gas – which comes under wholesale cost of power in Ofgem’s numbers. As Ofgem explain here the wholesale cost is set by power companies buying and selling fuel and power on the market.

The wholesale cost of gas for heating, is quite clearly, set by international gas prices. But the same also applies to electricity. That’s because the cost of gas feeds straight into the cost of power generated by gas, which in turn is the main variable in the price paid by utilities for all electricity.

Because the price of gas is highly changeable the numbers are updated on a weekly basis – the latest one – doesn’t yet include the bill rises from British Gas and SSE, but we’ll update our figures when they come through next week. It’s worth noting Ofgem compares your bill in any one month to the same month a year ago. Bills this time last year were also high so this year so far shows bills slightly lower.

That is likely to be reversed with this week’s bill rises.

Renewables

So what about the cost of renewables?

The cost of renewables support isn’t in the Ofgem document – instead it’s merged into VAT, Transmission and Other costs, so we got in touch with them directly.

An Ofgem spokesperson told us:

“In 2004 ROCs accounted for 1.0% of a dual fuel bill. In March 2012,they account for 1.9% of a dual fuel bill.”

Still following? In short that works out at about £25 a year. The Department of Energy and Climate Change (DECC) has published figures for 2011 which suggest that, that year, renewables added about £17 to the total bills. The two sets of data may not be completely comparable, but they suggest that the year on year increase due to renewables is around £8.

And wind?

Again this isn’t broken down – either on your household bill or in Ofgem’s statistics. It is, therefore, almost impossible to give an accurate answer. The key point is that wind only accounts for a portion of the ‘renewables’ element of your bill. Initially far more of this was spent on things like biomass, and we’re still paying for that today.

Renewable technologies are paid for through something called “Renewable Obligation Certificates”, you can work out roughly how much has been spent on any one technology in any one year, therefore, by working out how many have been issued to it. Renewables UK looked into Ofgem’s latest RO annual report and found the average household spends about £7.74 on wind power – you can check their calculations here.

Wait… you’ve missed solar

Solar attracts some of the most generous subsidies of any renewable technology – so surely it’s a big factor driving up bills right? No.

Actually it’s so statistically insignificant that the Department of Energy and Climate change don’t even quantify it. Whilst the subsidy may be generous the pot of cash available is severely limited – that’s why the government keep cutting the subsidies.

And margins…

Ofgem’s rolling net margin figure reflects the amount of money, per year, per customer that it thinks is going to the energy supplier. In March it was about £60, then it fell to £45 – that’s pretty low so now Ofgem think the suppliers will push it up to around £65.

On average, it seems to stay pretty constant but there are accusations that suppliers tend to put the price up when the cost of gas rises, and then keep it relatively high, when it falls – in order to profit on their margins.

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8 Responses to “What puts up your energy bill?”

  1. David Mullen

    One factor that has been left out is private ownership of the suppliers and the pursuit of profit at all costs.

  2. LB

    Nothing like hiding the VAT bit

    Lets see, the government profits more than the suppliers and its the suppliers that are to blame.

    You’ve missed off corporation tax, inflating the profits.

    Then remember that even on what’s left, the shareholders have to pay another round of tax.

  3. Newsbot9

    Nothing is hidden except in your accounting.

  4. Newsbot9

    As usual, you’re looking at ONE aspect of renewable power’s cost and saying “that’s all they do”. They’re talking about ONE aspect of the ongoing funding which RO’s require.

    RO’s are an order of magnitude and more more expensive than this, since they encourage non-economic building. Indeed, they’re causing things like hydroelectric power (which is cheap) to be *reduced* in capacity, in order to meet the RO system.

    We need a carbon tax, not the ridiculously economic inefficient RO system. We need nuclear power, not guaranteed rises of this magnitude every single year, which are leading to record levels of “voluntary” disconnections.

  5. George Carty

    Greenpeace don’t mention of course that wind and solar are almost useless without backup (which usually involves burning gas), due to their unreliable, weather-dependent nature. Take a look at this speech in which Robert F Kennedy Jr. gave to an audience of oil and gas executives, in which he proclaims that “the plants that we’re building, the wind plants and the solar plants are gas plants.”

    Environmentalist groups which fight tooth and nail against the real alternatives to gas (coal and nuclear) while promoting the phony alternatives of wind and solar have actually been of great benefit to the gas profiteers. One can note that the nuclear phase-out policies in both Italy and Germany were the result of corrupt politicians in the pocket of the gas interests.

  6. Newsbot9

    I don’t know, it’s coal which is benefiting in Germany.

  7. George Carty

    Either way, it’s fossil fuel profiteers who benefit the most from anti-nuclear activism.

    And Gerhard Schröder, the German Chancellor initially behind the nuclear phase-out policy there, was later given a €500,000 per year job at Gazprom as a reward for addicting Germany to Gazprom’s gas.

  8. Tom Muddimer

    Are energy companies also involved in extraction? If so, surely the data for wholesale energy price needs to be disaggregated so we can see the profit margin there. British Gas and other companies present this as a fixed cost, but if they’re involved in extraction the profit margins on this segment of production are likely to be huge.

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