It has been a stressful week for the consumers of UK energy due to the rising wholesale price of both gas and electricity. On Thursday, Aug. 21st, two of the “Big 6” energy suppliers announced consumer price hikes for monthly energy bills. The rising cost of energy brings into question how households are going to cope now that inflation in the UK is nearing 5% across the board.
The rising bills have also begun to hamper the Bank of England’s efforts to control this inflation, leaving the cost of living at nearly double the official target. E.ON announced a 26% increase in the price of gas as well as a 16% increase in the price of electricity, both effective August 22nd. Following suit was SSE, Scottish & Southern Energy, who announced a 19.2% increase in the price of electricity and a 29.2% increase in the price of gas to take effect August 25th. SSE is the #2 supplier of energy in the UK, with their 8.8 million customers seeing an average rise of £253, averaging £1259 per year with the current rate increase.
Both E.ON and SSE blame the staggering price swell by the rise of wholesale energy prices, which have experienced a 50% increase in the price of gas and 60% increase in the price of electricity between February and July 2008. According to E.ON’s managing director of retail the astounding increase in the price consumers will be paying, “was not an easy decision to make and we’ve tried to keep these increases as low as possible while protecting as many customers as we can.”
The drastic price inflation of the cost of energy is the result of a decrease in overall supply. A leak in a North Sea located pipeline linking Norway’s Kvitebjoern field to an onshore processing plant, caused the pipeline to be shut for repairs. Norway’s oil/gas producer Statoli Hydro stated the pipeline might remain shut until early spring. This devastating supply decrease coupled with the UK’s lack of gas storage makes consumers that much more vulnerable to price fluctuations. In addition, the widespread opinion that hydrocarbons, such as gas, are a scarce resource has fostered more intense competition for supplies worldwide.
The change in prices announced by E.ON and SSE was preceded by the record breaking 35% increases to the price of gas announced by British Gas just last month. Similarly, energy provider EDF, upped prices by 22% for gas and 17% for electric. With these increases last month, and the recent price hikes of E.ON and SSE, there are only two energy providers remaining who have yet to announce any alterations to consumer prices. However, the general consensus is that Scottish Power and Npower will soon follow suit. SSE’s Energy Supply Director, Alistair Phillips-Davies commented, “The world is experiencing an energy shock of a kind not seen since the early 1970’s, but which is likely to have more profound and lasting consequences."
With nearly 19% of UK households likely to be considered in fuel poverty this winter, consumers are left to make difficult decisions of what to do to decrease energy usage. Fuel poverty is defined as a household spending more than 10% of disposable income on fuel bills. Many of the energy suppliers have offered products at fixed or capped rate tariffs in the past. E.ON is the only company still offering its product at the old fixed rate. Price Protection 2009 will cost consumers approximately £1102.39 yearly, compared with the £1259 per year average. Alternatively, British Gas’ newly announced competitive fixed deal will guarantee stable prices through 2011, and will cost UK customers roughly £1240.19 per year.
Although British Gas’ fixed price plan is more expensive than E.ON’s current Price Protection 2009, consumers will be able to count on stable prices for the next 2 years. When deciding which direction to take, UK customers must decide what is a better option for them: gamble that the prices will not continue to rise in order to save money right now, or spend the additional income now in order to save on future price fluctuations. Arguments can be made for each eventuality, however the only right answer is the decision that you, the consumer, feel most comfortable with. Regardless of the decision made, it is definitely worth researching any and all possible energy plans, as well as finding ways to reduce the amount of energy consumed. Here are some tips on saving energy in order to help curb the affect these aggressive increases in energy will have on your household.
* Adjust your thermostat. The Energy Saving Trust states, decreasing the temperature setting by 1°C could yield a reduction of 10% on your heating bills.
* Use energy efficient light bulbs. The life of these light bulbs is around ten times longer than ordinary bulbs and can result in savings of £40 over the lifetime of the bulb.
* Fix leaking taps - a dripping hot water tap could waste enough energy in a week to fill half a bath so make sure it's turned off.
* Conserve by boiling only as much water as you need.
* Always turn lights off when leaving a room.
* Turn appliances off rather than leaving on standby. Also, do not leave electrical items to charge unnecessarily.
* Consider investing in a lagging jacket for hot water pipes and insulate pipes - this could pay for itself within a few months.
* Defrost freezers regularly and don't leave the fridge door open longer than necessary to ensure it runs efficiently.
* Consider investing in loft insulation as 25% of heat lost in a home disappears through lofts without it.
* Close curtains to stop heat from escaping.