William Pentland, Contributor
I write about energy and environmental issues.
The relentless rise of electric and gas prices in the United Kingdom has provoked a political backlash of epic proportions.
Over the past few weeks, three out of the UK’s six largest energy utilities - SSE, British Gas and nPower - have rolled out plans to raise electric and natural gas prices between 8% and 10% by the end of 2013.
The looming rate hikes have stoked the flames of an already fiery political fight over the past, present and future of energy and environmental policy in the UK.
In September, Ed Milibrand, the leader of the left-leaning Labor party, pledged to freeze energy prices for 20 months if the Labor party wins the next election in 2015.
Prime Minister David Cameron dismissed Miliband’s as a “con man” for suggesting that a price freeze would address the underlying issue, which appears to be inadequate natural gas supply.
Yesterday, former Prime Minister John Major called for imposing a windfall tax on England’s largest energy utilities while speaking at a Parliamentary Press Gallery lunch.
“It ought not to be acceptable to anyone, that many people are going to have to choose between keeping warm and eating,” said Major.
In response to mounting pressure to act, Cameron said today that he would seek to eliminate policy-imposed “green charges” on energy bills, which support energy efficiency and clean air programs.
“I want more companies, I want better regulation, I want a better deal for consumers,” said Cameron while speaking before the House of Parliament. “But yes, we also need to roll back the green charges.”
While Cameron’s proposal may seem reasonable compared to the borderline Bolshevik measures proposed by Miliband, it is just as unlikely to address the root cause of the problem, which is the long-term increase in wholesale gas prices.
The Committee on Climate Change, an independent government agency established under the Climate Change Act 2008, evaluated the factors contributing to overall price increases between February 2004 and January 2011.
The analysis concluded that wholesale cost increases accounted for nearly two thirds of the increase in natural gas prices. By contrast, environmental policies accounted for only about 7% of the increased price of natural gas during this period.
A background note on energy price trends prepared for members of the House of Parliament in early October stated:
There are a number of reasons for longer term increase in wholesale prices. According to Ofgem the two main causes of the increased price of domestic gas are high oil prices and declining UK gas supplies . . . The UK became a net importer of gas in 2004 for the first time in recent history. This means suppliers generally have to pay more for such gas.
Green charges account for 9% of the average customer’s $2,048 annual energy bill, according to energy regulator Ofgem.
By contrast, the cost of buying energy on wholesale markets makes up the largest proportion at 47%.
Eliminating “green charges” may modestly reduce energy prices in the short term, but it will not address the underlying forces pushing up energy prices in the long term.
The average customer’s annual energy bill has increased by more than $650 since the UK became a net-importer of natural gas in 2004.
The best and perhaps only way to reverse the rise in energy prices can be summarized in three words: Drill, baby, drill!