Energy supplier npower has predicted that energy bills will rise by 19% to 2020 – and that the government’s energy efficiency policies must shoulder its burden of the blame.
The report, entitled Energy Explained, has sought to dispel the widely held view that energy suppliers are using energy price rises to make record profits at the expense of UK homes and businesses.
“A recent npower survey showed that people believe supplier profits are typically about 40%, and general perception is that bills are rising because of supplier-controlled costs,” said npower’s CEO Paul Massara. “In fact, our profits are more like 5% and the main factor behind rising costs is government policy and regulation to fund this country’s transition to a more efficient economy, with modern infrastructure.”
Regulation: hitting where it hurts?
According to the report, policy and regulation costs are expected to rise by 78% between 2013 and 2020, while supplier-controlled costs will remain flat. Smart meters will add an extra £24 to the average household bill by the end of the decade, while commodity costs – which currently make up 45% of the bill – will make up just 35% of the bill.
The report contradicts reports from DECC and its climate change advisors, which both maintain that rising commodity prices are the biggest culprit for energy price rises – not regulation.
Quoted in a recent interview, energy secretary Ed Davey issued a blistering attack on npower’s figures, claiming that the company had overestimated the cost of the Energy Company Obligation (ECO) – a domestic insulation scheme – and underestimated the cost of rising gas prices.
“I’m afraid npower has quite a bad track record,” he said. “Before ECO was launched they put out a report that said the cost of ECO would be £3bn. To be fair, in this recent report they have the cost of ECO at £1.7bn, although they don’t tell anybody that they got it wrong by nearly double last year.”
However, npower insisted that it did not intend to play the “blame game” with the government, which it said was “right” to be transitioning to a modern, low-carbon economy. Indeed, Massara admitted, if no action was taken, homes and businesses could see prices rises that are even sharper than those currently projected.
“The fact is that if people don’t take action to reduce energy consumption, their bills are going to rise,” he said. “If we can’t be upfront about that, we won’t be able to convince people to make big changes to be more energy efficient.”
EMR confusion
The statement comes just weeks after npower published the findings of a recent roundtable of its business customers that revealed that some of the UK’s biggest commercial energy users are “confused” by the governments Electricity Market Reforms (EMR).
The round table, which included representatives of BT, Thames Water and Tata Steel, as well as a number of retailers, reported that there was a distinct lack of clarity around what the UK’s electricity market would look like in the future, and that this would hurt the UK’s competitiveness.
In particular, the businesses called for greater certainty on how each part of EMR would impact their costs, and reassurance from the government that it is doing all it can to protect the competitiveness of the UK in the international marketplace, as well as assurance that the scheme will have longevity.
“Businesses are telling us they need more information on how the scheme will work and how this will impact on business – particularly those making long-term investment decisions,” said Wayne Mitchell, npower’s industrial & commercial sales and marketing director. “Many are seriously considering moving operations out of the UK, which would be a disaster for an already fragile economy.”