Energy suppliers are often accused of increasing household energy bills to fill their own pockets. But energy supplier RWE npower has today said that global commodity prices or profit-hungry utility firms are not to blame for the seemingly never-ending rise in energy bills, which is expected to hit £1,487 a year by 2020, a rise of £240 (19.2%).
RWE npower, the UK arm of the German utility company, said the main reason for the rise in household bills is the cost of government initiatives to encourage greener forms of energy production and promote energy efficiency in people’s homes.
The government is investing heavily in new power plants and transmission networks to help Britain sort out its energy needs and keep the lights on. Many of the UK's current coal, gas and nuclear power stations are reaching the end of their lives – and the recent spate of cold winters hasn’t helped. Residential gas use was up 18% for the first four months of the year, according to Centrica.
To cope with the looming energy shortage, the government is investing heavily to shift the UK to a low-carbon economy. The coalition hopes that the super heavyweights of international finance will pick up the bill by putting their money in the UK rather than anywhere else.
But there are concerns that the cost of upgrading Britain’s energy system will be much higher than estimates and will have a sizeable impact on what consumers pay for their gas and electricity. The problem with renewables - such as wind power - that the government is subsidising so heavily (the cost of which is ultimately borne by the end user) is that they are expensive to install and can't be relied upon to generate round the clock. So back up power is also required, usually in the form of not-so-low carbon gas fired power stations.
The risk is that we end up with the worst of both worlds - expensive electricity as a result of the 'green tax' on power bills, making business uncompetitive, with only a marginal reduction in carbon emissions to show for it, because of the need for gas-powered back up.
Npower said the cost of supporting low carbon technologies would add £82 to the bill by the end of the decade, up from £12 in 2007, while the cost of carbon would increase by £45 during the same period.
The company also warned that energy firms are dealing with increasing transport costs – the payments energy suppliers must make to the National Grid for high-voltage transmission and to local electricity and gas distribution companies. Npower said transportation costs of connecting power networks up to the new generation of offshore wind farms will add an additional £114 to the average energy bill by 2020.
But the government has defended its decision to invest heavily in green energy. Energy and Climate Change Minister Greg Barker said: ‘Gas prices not green policies have been primarily pushing up energy bills. That is why it is vital we crack on with securing investment in a diverse energy mix that includes renewables and new nuclear, as well as gas.’
And it’s is not all doom and gloom - one positive result from rising prices should be an substantial increase in efforts to be more efficient in our electricity usage. If we can use less but pay more for it, the overall cost may not rise as much as some fear.