Saturday, 6 February 2016

60% OF ELECTRICITY COSTS ARE NON-ENERGY RELATED

Reuters, 1 February 2016

Karolin Schaps and Susanna Twidale


British households will not benefit from a fall in market electricity prices because their suppliers are facing rising costs elsewhere, such as green energy subsidies, which they say cancel out any wholesale price falls.

Electricity and gas prices traded on the open market have fallen 20-35 percent in recent months as milder-than-normal weather has curbed demand and falling commodity prices have added even more downward pressure.

Two of Britain’s ‘Big Six’ energy suppliers, E.ON and SSE, have so far announced price cuts of around 5 percent to household gas tariffs, but reductions to electricity prices are notably absent.

“Many of the other costs that make up an electricity bill and that we don’t control have increased or may increase,” said a spokeswoman for E.ON UK, whose gas prices will fall 5.1 percent from Monday.

“These include electricity network costs – transmission and distribution – as well as environmental levies, such as the renewable obligation and FiTs (feed-in-tariffs).”

Cornwall Energy data showed the costs of government policies, which also include discounts for low-income households and payments for energy efficiency measures, on energy suppliers have risen to the highest level ever.

This means non-energy costs now make up as much as 60 percent of the average British electricity bill, up from 45 percent four years ago, according to Cornwall Energy data.

The main drivers here are the increasing costs to help finance building renewable energy plants, such as solar panels or wind farms.

Suppliers’ cost of the Renewable Obligation, the outgoing mechanism to distribute green energy subsidies, is 12.86 pounds per megawatt-hour, up from 10.57 pounds a year ago, Cornwall Energy said.

“These utilities are not selling electricity, they’re passing through renewable subsidies,” said Mark Freshney, utilities equity analyst at Credit Suisse.

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