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Saturday, March 10, 2018

Could the increasing cost of energy have been avoided?

Over on the Guardian website, the Labour Party are making some pretty big claims about the huge hike in energy bills that we have all experienced over the last ten years or so. Their hypothesis is that the Conservatives have cost British households nearly £1,000 in extra energy costs over the past seven years by failing to stop electricity and gas firms raising prices.

The figures are quite stark. In 2010, a household with typical energy consumption paid £1,038 for an annual dual fuel bill. In 2017 it was £1,116, but in some years it has been more than £1,200. They say that figures from the House of Commons library show that if we add up the annual amount consumers have paid above the 2010 level the total cost to an average household is £957.

As a result the profits of the big six energy companies had continued to thrive, whilst around 2.5m households remained in fuel poverty. In reality of course things may well be a bit more complicated than this:

A spokesperson for the Department for Business, Energy and Industrial Strategy said: “Energy prices have gone up and down since 2010, driven by external factors including wholesale and network costs, and policies that have led to investment in networks, energy efficiency and low-carbon generation.

“Freezing energy prices would have meant a lack of important investment in infrastructure and would have damaged businesses when market-driven costs went up.”

The analysis assumed that energy use has remained constant when in reality it has been falling over the past seven years due to more efficient products. The real amount consumers have paid due to tariff increases is therefore likely to be lower than £957.

When I was an Assembly Member I consistently criticised energy companies for putting up prices to cover supposedly rising costs, whilst at the same time raking in massive profits. When costs fell, the cost to the consumer rarely, if ever followed.

It may well be that a price cap will make a difference, though the point about investment is well-made. However, the real problem it seems to me is the way the big six companies appear to operate as an oligopoly, complicated pricing structures that make it difficult for customers to shop around and the consequent lack of real competition in the market.

In that regard, we should not forget the role of Labour, when they were in government, of effectively creating this situation by allowing energy companies to coalesce into six large entities and to dominate the market in this way. This is not just a Tory problem.
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