Energy Guides

Energy price rises

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Article updated: Friday 22 May, 2009

By becca.talbot@consumerchoices.co.uk

Wholesale energy prices for 2008 increased from last year by 66% for electricity, and 60% for gas. This rise in wholesale prices has affected energy suppliers’ prices.

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We investigate why energy prices have increased and what you can do to save money on your bills...

Energy suppliers such as British Gas (www.britishgas.co.uk) and Scottish Power (www.scottishpower.co.uk) buy energy from wholesale market producers. These include power station operators and gas producers. Of all the elements which make up electricity and gas prices, energy companies point to wholesale cost as 70% of current energy prices.

Why have prices risen?

The increase in your energy bills is being blamed by energy suppliers on the rising costs of wholesale energy.

The UK has become an importer of energy from global markets and is dependent on overseas suppliers. This pushes up wholesale energy prices since the product is not produced in this country.

Wholesale gas prices in the UK are also said to have been driven higher by the growing number of energy firms on the continent turning to the more liberalised UK market for cheaper supplies.

Suppliers must also meet environmental legislation to reduce CO2 emissions. The cost to complete these changes is often passed on to the wholesale price.

Changes to the cost of coal and gas have a dramatic effect on UK wholesale electricity prices. Analysts say wholesale gas prices have risen on the back of the record cost of oil, as any increase in the price of crude has a knock-on effect on gas.

The higher cost of gas means increased electricity bills because gas accounts for 40% of electricity production in the UK.

Instead of absorbing the cost, energy suppliers have passed this increase on to customers by increasing energy prices.

UK household energy bills last rose strongly in 2008, with most suppliers increasing their bills to counter higher wholesale prices.

To see if you can save money on your gas and electricity bills, compare energy prices.

2. What can I do to avoid energy price rises?

You should make sure you compare gas and electricity prices regularly (use our energy calculator) to ensure you’re still getting a good deal and not paying over the odds. It is difficult to avoid the rises since nearly all suppliers have increased their rates, if you have not taken your bills paperless (online account management) or do not pay via direct debit you are missing out on the greatest savings.

If you want to save money on your gas and electricity bills you should begin by looking at your home's energy efficiency. Read our energy efficiency guide for useful money saving tips and advice.

3. Is the UK market competitive?

Ofgem, the independent watchdog organisation which helps to regulate the energy market, has said the UK market is competitive. However, British Gas’ parent company turned a £600million profit in 2007 but still raised prices 15% in 2008. Because of the high profitability of UK energy providers, the Common Select Committee is investigating unfair practices including monopoly on the marked and price gouging.

The enquiry will explore whether current gas and electricity providers in the UK are using unfair and even secretive business methods to defraud customers. The industry came under fire after many energy companies increased prices and other new providers complained that the market was not competitive. The Committee will gather information and eventually interview executives about how they determine prices for services.