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Tuesday, 2 August 2011

Rising Energy Costs Move Up Political Agenda

Higher energy costs are likely to become one of the most sensitive issues in British politics, according to analysts, after Scottish and Southern Energy became the third utility in quick succession to announce a big increase in customer bills.

SSE’s decision on Thursday to increase gas and electricity charges by 18 and 11 per cent respectively will leave a typical dual-fuel customer paying £1,265 a year. The company acknowledged that this burden, amounting to over 6 per cent of the UK’s median post-tax salary, will cause additional hardship.

“SSE is very sorry about the impact that rising energy bills, along with other rising costs, such as food, has on many households,” said the utility, which supplies 5.2m customers with electricity and 3.6m with gas.

The decision had been forced by rising wholesale prices for electricity and gas, said SSE. This, in turn, had been caused by the “tsunami in Japan and political upheaval in the Middle East, and longer-term trends such as the fast-increasing energy needs of the Asian economies”.

British Gas and Scottish Power cited the same factors when they announced similar price increases earlier this year.

However, the government wants the “big six” utilities to spend £200bn on renewing Britain’s entire energy infrastructure over the next decade. The cost of this ambitious scheme to replace lost generating capacity and cut carbon dioxide emissions will be passed on to consumers in the form of higher bills, said analysts.

If so, future increases in energy charges will be the indirect result of government policy.

“It’s going to be very much a political hot potato. It’s going to hit all of us and I would expect MPs’ postbags to be full of letters this winter,” said Ann Robinson, energy analyst at Uswitch, a consumer website.

“All the huge investments are going to start and they’ve got to be paid for. The government should stand back and re-assess its energy policy.”

Higher energy bills place a disproportionate burden on the old and the poor, while in the business sector, manufacturing industry is most vulnerable. One government policy – the introduction of a carbon price floor – will raise electricity costs for energy-intensive companies by 10 per cent by 2020, according to Roger Salomone, energy adviser at EEF, the manufacturers’ organisation.

“An increase of that order is going to be very significant for energy-intensive companies and for manufacturing in general,” he said. “It could affect the business case for where a product is made.”

Chris Huhne, the energy secretary, described SSE’s decision as “very unwelcome news”, adding that it justified his aim to “reduce our dependence on fossil fuels” and create a “greener, cleaner and ultimately cheaper mix of electricity sources.”

Mr Huhne has previously advised consumers to switch suppliers when bills rise. But Huw Irranca-Davies, Labour’s shadow energy minister, pointed out that three utilities have increased their charges this year and others may follow.

“That will be fascinating advice if we see a summer when all of the ‘big six’ increase their prices by similar amounts. Who do you switch to then Chris?” he asked.

Mr Irranca-Davies added that the utilities should be referred to the Competition Commission. Only a formal investigation would show whether their bill increases had been justified, he said.

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