Energy prices to double over the next ten years?
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.