Will volatile gas prices drive consumers to renewables?

By Tierney Smith

EDF has announced a 5% cut on gas prices for customers (Source: tompagenet/flickr)

Three of the UK’s ‘Big Six’ energy companies received favourable headlines this week when they announced price cuts in domestic gas.

EDF was the first to announce cuts saying they would reduce their gas bills by 5% s from February 7.

British Gas cut electricty prices by 5% with immediate effect – although their gas price remains unchanged – and Southern and Scottish Energy (SSE) announced a 4.5% cut in their gas price from 26 March.

The announcements followed a 9.2% fall in the price of wholesale gas over the winter period – largely due to mild weather.

But with energy prices going up last Novermber – for example EDF gas prices rising by 15.4% – most customers, are still paying 10% more than this time last year.

For the main energy companies this appears to be a PR coup at the start of a year where the economy is expected to bring more bad news.

But what is the truth behind the spin?

Are these cuts proof of fair play from the major energy providers, or simply more evidence that price volatility of fossil fuels is utterly unpredictable?

And do they make the case not for more long-term investment in ‘cheap’ gas, but in wind, solar and other forms of renewable energy?

“What customers want more than anything else is fair, clear and transparent prices,” said EDF Energy chief executive, Vincent de Rivaz. “We know they want action rather than words.

“That is why we are the first major supplier to announce a cut and were the last to increase prices.”

This week’s announcements are the third time customers have seen a change in their energy bills during the last seven months, and  British Gas’ parent company Centrica also says the long term indicators suggest gas prices will rise.

In today’s statement Centrica say:  “Energy bills include a number of costs, many of which are increasing.   For example, if you want to buy gas in the wholesale market now for delivery at the end of 2012 it is already trading at a price more than 14 per cent higher than at the end of 2011.”

Curbing the effects of volatile  fossil-fuel prices on the economy is a key plank in the UK’s long-term energy strategy. Cutting the country’s dependence on coal,  oil and gas as also unsurprisingly a key step in cutting the UK’s carbon emissions.

Thanet windfarm

Global investment in clean energy rose 5% to a record $260 billion in 2011 (Bloomberg New Energy Finance)

For environmental groups such as Friends of the Earth (FoE) these price changes are yet another reason why the UK should invest heavily in renewables.

“The price volatility, particularly with gas, makes it impossible for households to manage their budgets and businesses to manage their budgets sensibly,” Paul Steedman, FoE Energy Campaigner told RTCC.

“I think that people are beginning to see that the system is totally broken, that we are reliant on these Big Six energy companies who keep putting prices up and then down and then up again. They have seen the long term trend and that is up.”

FOE’s Final Demand campaign calls on the government to reassess the power of the Big Six and to continue with support for renewables aimed at getting the UK off the fossil fuel hook.

Chris Huhne, Secretary of State for Energy and Climate Change, made several similar calls last year saying the country must escape from its “fossil fuel addiction.”

He also believes the price volatility of the gas and electricity market strengthens the argument for diversifying the country’s energy mix.

Speaking at the RenewableUK Conference in Manchester in October last year he said: “About half of the average household bill goes on wholesale gas and electricity costs. These costs are highly volatile.

“As Ofgem make clear, the higher gas price is the real reason bills have been going up over the past eight years – that is why we need a flexible energy portfolio.”

Diversification is essential, even in renewables. If the sun does not shine, or the wind fails to blow, there needs to be a Plan C.

The good news is that investment in these alternative forms of energy is increasing and becoming more popular with consumers.

A report released today by Bloomberg New Energy Finance revealed global investments in clean energy rose by 5% to $260bn in 2011, despite a weak global economy and a squeeze on manufacturing.

Also this week UK customer watchdog Which? released its annual energy company satisfaction survey.

Three of the top four companies specialise in renewable energy, while EDF and Npower make up the bottom two, and only one of the Big Six, Scottish and Southern Energy, recieved a customer satisfaction of 50% or above.

Contact the author of this story @rtcc_tierney or via [email protected]

Read more on: Energy | Living | |