Energy News

A quarter of households face fuel poverty by 2015

Wednesday 12th October, 2011

By Martin Fagan

The government’s green commitments will add 25% to energy bills in four years, says Deutsche Bank

Energy bill increases over the last few year’s show no sign of abating, as new research predicts the government’s green agenda will add another 25% to energy bills by 2015.

This predicted increase is on top of any future rises in the wholesale price of gas and electricity.

The analysis by Deutsche Bank suggests rising energy bills and sluggish income growth will make household energy less affordable than at any time since the oil shocks of the 1970s and this could force a quarter of UK households into fuel poverty.

Fuel poverty is when a household spends more than 10% of its income on energy bills in order to maintain an adequately warm house.

So far in 2011, energy tariffs have increased by an average of 20%, pushing up the average annual household bill to £1,293. Deutsche Bank predicts bills will rise by another 25% - around £325 - by 2015, taking the figure to £1,618.

The government’s proposals to force energy companies to spend £200billion by shifting to wind turbines, wave power and new nuclear power stations will burden hard-pressed Brits, as energy companies pass these costs on to bill payers.

At present, “policy costs” add 10% to household energy bills, principally the “renewables obligation”, which compels suppliers to buy a proportion of their electricity from renewable sources. In July this year, Downing Street energy adviser Ben Moxham predicted that, by 2020, government policy would add 30% to the average bill.

According to research by Credit Suisse, the renewables obligation put£1.3billion on bills last year and this sum will climb to £2billion in 2013. The government will also introduce a carbon floor price, intended to make coal and gas-fired power stations more expensive to operate, in 2013.

Although the profits of the “big six” energy companies attract the most attention, the research says these are far less significant than might be thought. Deutsche Bank forecasts that UK households will spend £48billion on energy in 2015 and of this, only £1.3bn (2.7%) will be the post-tax profits of retailers. In short, government policy will increase energy bills by far more than the rising wholesale price of gas.

Deutsche Bank says that politicians’ consistently hiding the true cost of green measures and their continued attacks on the “big six” companies for excessive profiteering only serves only to raise false hope in consumers.

“A political expectation is being created in people’s minds that if we can bash the retailers, that will lower bills, but the numbers just don’t support that,” said Martin Brough, director of industrial research at Deutsche Bank.

"While it is tempting for politicians to blame excessive retail profits, the reality is that the UK is once again a net importer of energy, and international fuel prices have doubled."

After several decades of energy self-sufficiency in the UK, falling production from ageing North Sea gas fields means the UK now imports more energy than it produces, leaving households at the mercy of fluctuating prices on the International energy markets.

Abandoning the renewables obligation and the carbon floor price would cut bills by 13% from 2015, according to Deutsche Bank.