Energy prices to double over the next ten years?

21 October 2013

 You can’t fail to have heard the double whammy of energy news this morning- not only have corporation-tax-dodging nPower hiked their energy prices to follow SSE and British Gas, but news of a new nuclear power plant in Somerset is also hitting headlines. But what do these things tell us about the future of energy costs in our homes.

The basics of the new nuclear facility at Hinkley are relatively simple- the Government isn’t going to pay to build the plant, a consortium of France’s EDF energy and Chinese investors will. However, to get them to agree to cough up the cash, they will then get a guaranteed price for the energy generated (a ‘strike price’), a price set at double the current market rate, with a guarantee lasting for 35 years. The LibDems are happy because no public money is funding this non-green energy, even though the construction costs will be subsidised and the energy users (who may very well be taxpayers, but still, this is private money) will be footing the bill for 35 years.

Green campaigners and people living in Hinkley are dead against the scheme, as are a number of other parties who are sceptical of who is benefitting from this deal.

Prime Minister David Cameron said that the new Hinkley Point plant was "an excellent deal for Britain and British consumers"; the government estimates that (all) nuclear power means that a bill in 2030 will be £77 lower than it would have been. They didn’t explain how much cheaper energy bills would be now without all the green levies of the (now presumably abandoned) green energy project.

However, given that both Dave and his good friend Energy Secretary Ed Davey are patting each other on the back at their cleverness in negotiating a great deal (the strike price is agreed at £92.50/MWh and EDF originally wanted £100. The Government wanted to pay £80), how on earth can this deal be the "good value" Davey claims if they are paying double the current cost?

One way in which that could be true is if the Government are anticipating energy prices will double in the next ten years- the plant will not become operational until 2023. Bearing in mind that the £92.50 is before inflation- so high inflation will push  the price up even higher- is it conceivable that this is the case?

The latest rises are around 10%, but this includes inflation, but a 10% increase a year would double prices in a decade. In 2004 the average bill for both electricity and gas totalled £605; in 2013 (before the latest rises) that figure is £1,315.  That represents a multiple of 2.18, i.e more than the doubling of prices the Government has just agreed. If prices do continue to rise at the same rate as they have previously, then this might be the good deal the Government thinks it is.

And we’d all better start saving for our future energy bills.

TOPICS:   Utilities

11 comments

  • Ian
    Sam Thewlis writes thoughtful, well researched pieces on actual consumer matters. Doesn't really fit on this site...
  • OldGit
    So zero CO2 emissions are not green then, Edf thinks it is. Its just a few thousand tons of highly radioactive nuclear waste thats the problem. And as for saving for future energy bills, its either that or get use to the lights going out (unless you have a cheaper solution to provide 7% of the nations requirement, thats a lot of windmills). A balanced energy policy does not mean cheapest/green(est) it means from different sources to ensure the lights stay on (if the Russians cut the gas, Chinese cut the Coal, Arabs cut the oil etc or they all put the price up) - where do we buy our nuclear fuel from? I can remember when we had something called a mining industry, we used to dig up coal and burn it in the power stations, when we were not on the 3 day week, power cuts.......
  • Charley
    Well they've tripled over the last 10 years. Why complain now.
  • Han S.
    @Ian Sam Thewlis doesn't, however, end questions with a question mark.
  • badgerbaiter
    Why not.
  • Shiftyniftysshadow
    Trebled...tripled ...we are fucked either way , don't bother being the last one to turn out the lights , some Chinese bod will do that
  • jt
    "a 10% increase a year would double prices in a decade" or actually just over 7 years, if you are capable of doing the maths.
  • jokester2
    Dammit, JT, you beat me to it...
  • Alex B.
    According to http://www.consumerfocus.org.uk/policy-research/energy/paying-for-energy/wholesale-retail-prices the current UK wholesale price for electricity is about £50 per MWh. So £92.50 is about 85% more. Given that Hinkley C won't come online until 2023, that's a 6.5% annual increase compounded (over and above inflation). Blame dithering and denial by previous governments, causing us to have a predicted gap between demand and available supply, and consequent loss of domestic skills. And moves to decarbonise our electricity generation capacity due to concerns over anthropogenic climate change. And peak production of oil raising energy prices across the board.
  • Alexis
    Meh. We need a new nuclear power station, so who cares.
  • fibbingarchie
    'Green campaigners and people living in Hinkley are dead against the scheme...' I wonder how many of them were out campaigning and left electrical appliances on at home?

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