Energy Prices

Standard Note: Last updated: Author: Section SN/SG/4153 6 November 2013 Paul Bolton Social & General Statistics

This note includes a limited amount of information on the different elements that make up an energy bill. The new note Components of an Energy Bill includes much more detail on this and the different factors behind price rises.

The price of domestic gas and electricity has generally increased over the past eight years after around a decade of falling prices. The cost of heating oil has increased by a larger amount. There have been some price cuts over the past few years, but these have been smaller than the price rises. Last winter all of the big six energy suppliers increased gas and electricity prices by between 6% and 11%. So far this autumn four of the big six have announced price increases of between 8.5% and 11.1% which will be implemented before the end of the year. Domestic prices have ratcheted up as higher operating, network and environmental costs and higher supplier margins have magnified the impact of longer term increases in wholesale costs. In the medium to long term the pressures on price all appear to be upwards and the only way for most consumers to reduce the impact of increased unit costs, and even to reduce their bills, is through energy efficiency improvements. This note focuses on trends in the domestic market -the costs of gas, electricity and other fuels used for heating and the impact on fuel poverty. Most data is in price indices the statistical literacy guide on index numbers gives some advice on interpreting them. An analysis of the impact of earlier price trends on levels on consumption can be found in Energy price rises and their impact on demand. The note Fuel Poverty looks at trends, patterns and projections of fuel poverty and the article Energy prices and fuel poverty gives a brief snapshot of trends in prices, fuel poverty and prospects for the future. Help with Energy Bills gives information on sources of financial and practical help for individuals. The recent Energy and Climate Change Select Committee Report Energy Prices, Profits and Poverty contains information that many readers of this note may find useful. Ofgems detailed analysis of the retail energy sector can be found on their Retail Market Review pages and regular updates of trends in the broad make-up of a bill in their weekly Electricity and Gas Supply Market Indicators. A more detailed analysis is included in Household bills explained. The Department for Energy and Climate Change (DECC) produces an annual analysis of the impact of energy and climate change policies on average bills. This looks at current bills and forecasts through to 2020 and beyond. DECCs Quarterly Energy Prices contains comprehensive national and international statistics. This note does
This information is provided to Members of Parliament in support of their parliamentary duties and is not intended to address the specific circumstances of any particular individual. It should not be relied upon as being up to date; the law or policies may have changed since it was last updated; and it should not be relied upon as legal or professional advice or as a substitute for it. A suitably qualified professional should be consulted if specific advice or information is required. This information is provided subject to our general terms and conditions which are available online or may be provided on request in hard copy. Authors are available to discuss the content of this briefing with Members and their staff, but not wit h the general public.

not look at road fuel prices. Trends in these are summarised in Road fuel prices: Social Indicators page and crude oil price trends are described in Oil prices.
Index of real domestic fuel and light prices (Q1 1987=100)
140

130

120

110

100

90

80

70

60 1970

1975

1980

1985

1990

1995

2000

2005

2010

Source: Quarterly fuel prices, DECC. Table 2.1.1

Contents
1 Domestic sector Summary of energy use 1.1 1.2 Price changes Domestic expenditure on energy Average gas and electricity bills for typical consumers Other estimates of average bills Actual household expenditure International comparisons 1.3 2 Impact on fuel poverty 3 3 3 5 5 6 7 8 9 9 10 11 14

Why have gas and electricity prices increase so much? 2.1 2.2 Spot wholesale gas prices Overall assessments and projections to 2020

Reference tables

Domestic sector

Summary of energy use In 2012 the domestic sector was responsible for 29% of final energy consumption in the UK. Gas made up 68% of total domestic energy use, followed by electricity (23%), petroleum products (6%) and coal/solid fuel 2%. Total energy use by this sector fell by almost 20% in 2011, in large part due to the milder winter, before increasing by 11% in 2012. Domestic energy use increased by 16% between 1970 and 2012 and 6% was has increased by 6% since 1990.1 An estimated 97% of households in Great Britain had central heating in 2011. Among those homes with central heating 85% used gas, 8% electricity, 4% oil and 1% solid fuel. Overall 53% of the energy used in homes in 2012 was for space heating, 30% for lighting and appliances, 14% for water heating, and 3% for cooking.2

1.1

Price changes

230 210 190 170 150 130 110 90 70 50

1987

Index prices of selected fuel components of the RPI

indices relative to the all items RPI, January 1987=100
Coal and smokeless fuels Gas Electricity
Heating oils

The first chart opposite gives monthly index values for selected fuel components of the Retail Prices Index (RPI) since 1987. This shows how the real price of each has change over this time and helps compare trends. The second chart below separates out each series to better identify the trends for individual fuel types. This data is summarised in Table 1 at the end of this note.

1990

1993

1996

1999

2002

2005

2008

2011

Source: ONS series DOBW, DOBY, DOBX, DOBZ and CHAW

1 2

Digest of UK energy statistics 2013, DECC. Table 1.1.5 Energy Consumption in the UK 2013, DECC

Gas prices fell consistently during the late 1980s and 1990s, with the exception of 1995 when VAT was introduced. By late 2000 prices were one-third below their January 1987 level in real terms. The main reasons for the price falls up to 2000 were price controls set by the regulator and, latterly, the impact of competition. The price rose relatively slowly over the following few years and more rapidly from autumn 2005 to the end of 2006. Prices peaked in January 2007 at a level 82% above the late 2000 low and above the January 1987 (immediately post-privatisation) level. Prices increased again in early 2008 and in summer 2008. There were price cuts in early 2009 and early 2010, but price rises in autumn 2011 and winter 2012/13 meant that spring 2013 prices exceeded the winter 2008/09 peak levels. The RPI figures do not yet reflect the price rises which will come in before the end of the year.

140 130
120 110 100

Coal and smokeless fuel

90 80 70
120 110

Electricity

100 90
80 70

150 140
130 120 110 100

Gas

90 80
70

225

Heating oils

200

175

150

125

Electricity prices changed little until the mid 1990s after which they started a period of consistent falls. Continued price reductions over the following eight 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 years saw a real reduction in the price of around 30%. Regulator-imposed controls on prices and, since 1999, supply competition were again partly responsible for the price reductions, as were the reductions in the Fossil Fuel Levy from 1996 onwards. Electricity prices have increased since spring 2003 and, as with gas, price increases have been greater since autumn 2005. The January 2007 price peak was 44% above the 2003 low and 5% above the level immediately after privatisation (January 1991). As with gas, prices increased in early 2008 and summer 2008 and fell back slightly in early 2009. However, unlike gas there have been no major cuts in prices since then. The autumn 2011 electricity price rises were smaller than those seen for gas, the winter 2012/13 price rises were slightly lower than those for gas. These took cash prices beyond their winter 2008/09 peaks, but real electricity price levels are still slightly below this level.
75

100

2011 2013

If prices rise in autumn and fall in spring by the same amount the total amount paid by consumers across the whole year will be higher than if they had remained the same throughout the year because more energy is used in the colder months. Gas (and to a lesser extent electricity) prices have followed this pattern in some recent years The price of heating oil tends to mirror trends in crude oil and hence it has been extremely volatile over this period with numerous sharp spikes and a rapid rise from mid-2007 to mid2008 and a rapid fall afterwards. Prices have increased since early 2009 and the latest real price was 91% above the January 1987 level and 235% above the late 1998/early 1999 low. The cold spell in November/December 2010 resulted in a steep price spike for heating oil as demand increased and in some places supplies were short due to the harsh weather conditions. Sustained higher crude oil prices in 2011, 2012, in part linked to the political unrest in the Middle East and tension between Iran and the West, have meant heating oil prices have remained high in subsequent years. Coal prices have shown a greater seasonal trend than the other fuels. The underlying trend was downwards or static during the late 1980s and 1990s. There has been a general

upwards trend since then. The large rise in prices in late 2008 has not been reversed, but subsequent winter peak prices have been somewhat lower in real terms. The next chart looks at annual data from 1970 to 2012. Index values are again expressed relative to the RPI to show how the price of these fuels has changed relative to the general price level. The annual index values given here smooth out season factors and large monthly changes that were shown in the earlier charts.
210 200 190 180 170 160 150
140
Coal and smokeless fuel Gas Electricity Heating oils

Index prices of selected fuel components of the RPI

annual indices relative to the all items RPI, 1987=100

130 120 110 100 90 80 70

60 The longer term chart shows 50 that most energy prices 1970 1975 1980 1985 1990 1995 2000 2005 2010 increased during the 1970s and early 1980s. Heating oil increased by the greatest proportion and all these fuels saw a sharp increase during the oil shocks of the late 1970s. Gas was the exception to this general trend as its price generally fell during the 1970s. The price of all of these fuels peaked in the early 1980s as the Miners Strike meant rising coal prices and increased demand for the other fuels. Average oil prices peaked in 2011 in real terms, but 2009 prices electricity were the highest for the whole of this period, 2009 peaks for gas and coal were exceeded in 2012.
Source: Quarterly fuel prices, DECC. Table 2.1.1

1.2

Domestic expenditure on energy

Average gas and electricity bills for typical consumers The RPI data in the previous section has the advantages of a long time series, monthly data and being up-to-date. However, it does not give actual costs. The most meaningful indicator in this respect is the average bill for a typical consumer. DECC and its predecessor departments have published this series back to 1990. The cost of gas and electricity can vary according to supplier and type of payment. According to DECC the average gas bill for 2011 varied from 773 for direct debit customers to 839 for those paying quarterly bills. Table 2 at the end of this note includes these figures going back to 1990; trends are illustrated in the chart below. More recent data also reflects savings made from switching from the former monopoly supplier.

The average standard credit bill fell by a total of 93 (in 2012 prices) between 1991 and 2001 (20%), but has subsequently increased by 459. Most of this increase happened between 2005 and 2009. The average 2012 standard credit bill in Scotland was 1% below the average for England and Wales. These calculations use a constant level of consumption and hence only reflect differences in the price paid per unit in different areas.3

Average annual standard credit bills for typical consumers

2012 prices
Gas Electricity

800 700 600 500 400 300 200 100 0

1990

1993

1996

1999

2002

2005

2008

2011

Table 3 includes equivalent information for electricity bills. Trends in average bills are also included in the earlier chart. The average electricity bill for 2012 was 460-501, depending on payment method. Average bills have followed a similar trend to the RPI data with consistent real falls in average standard credit bills totalling 120 in 2010 prices (28%) between 1992 and 2003 and a 189 increase since 2004. The 2012 level was the highest in this series, but the recent price rises have been noticeably smaller than for gas. Average standard credit electricity bills in Northern Ireland jumped by much more than in the rest of the UK in 2008 and 2009 and by a greater amount in 2012. This meant they were 50-70 per year above the levels in England and Wales and Scotland.4 The 2012 bills are based on prices for the whole year, not at any one point during the year. The 2012 figures will therefore only take partial account of the price rises announced late on in the year. Other estimates of average bills Earlier data from British Gas shows that since 1979 the peak gas bill (for the same consumption level) was in 1983/84 at just under 700 in current prices.5 6 Data on electricity bills since 1983 shows the peak real bill was also in 1983/84 at around 560 in current prices.7 8 Neither of these series is entirely consistent with the data in Tables 2 and 3 due to differences in data sources, timing and geographies- but they do give an indication of earlier trends and a guide to comparative bill levels. They suggest that electricity bills in 2012 were below their peak mid-1980s peak. Gas bills in 2012 were at clearly their highest level from this period. The average bills mentioned above are different from some quoted elsewhere. Consumer Focus usually estimates average bills using current prices, ie. what bills would be over the next year if prices remained as they are. This is essentially a forward looking method and in a time of rising prices will give higher figures than annual averages and vice versa. The DECC data for 2007 to 2012 uses prices covering the whole calendar year. Prior to 2007 official figures used prices for the year to September. They are both essentially backward looking, so gives a lower figure when prices are rising. In addition the average bill data
3 4 5 6 7 8

Quarterly energy prices, DECC. Table 2.3.2 ibid. Table 2.2.2 British Gas Financial & Operating Statistics 1987, 1994 Prices adjusted the all items RPI Prices based on simple average of regional electricity company tariffs Electricity Association: UK Electricity Tariff Rates

produced by DECC uses typical domestic consumption levels of 3,300 kWh and 18,000 kWh for gas and electricity respectively. These levels had been commonly used in the industry, although some organisations, including Ofgem have recently revised down their gas consumption levels. While the level of typical consumption used has no effect on trends in average bills, it does affect the absolute value and hence the impact in pounds and pence of any given percentage change. In 2012 the average domestic consumption of electricity and gas was 4,200 kWh and 15,300 kWh respectively.9 The gas figure especially has fallen over time. Ordinarily this is connected to a mild winter, but high prices and improvements in energy efficiency will also have been a factor over recent years. Gas consumption had been 20,000-20,500 kWh per household over the period 2001-04. Actual 2012 consumption levels would cut around 125 a year off the figure for a typical gas consumer and add around 140 a year to the figure for the typical electricity consumer.10 Mean consumption levels can be skewed by a relatively small number of very high users. It is likely that households with electric central heating skew the mean electricity figure above the median value and the typical consumption level is closer to consumption levels for households with other forms of heating. Heating oil and coal prices The average price for deliveries of up to 1,000 litres of heating oil in August 2012 was 55.3 pence per litre. The trend in prices is illustrated in the earlier charts. The price peaked at 64.4 pence per litre in April 2012 which was just above the earlier peak of 64 pence in July 2008, it was below 20 pence per litre in the first months of 2004 and 10 pence a litre in early 1999.11 The average price of 50kg of smokeless fuel in September 2012 was 20.04. This was up from 10.90 January 2004; a real increase of 37%.12 Actual household expenditure According the Expenditure and Food Survey mean household expenditure on all (non-motor) fuels in 2010 was 23.46 a week or around 1,220 a year. Expenditure on motor fuel alone was almost 16 a week more than this.13 Average spending on non-motor fuels for households in the lowest income decile was 13.90 a week (8.0% of total spending) compared to 31.70 in the top decile (3.0% of all spending).14 The 2009 average weekly spend on non-motor fuels was the highest in real terms since the late 1980s, but still relatively low when considering the period from the mid-1970s. The real level of spending per household increased during the late 1970s and early 1980s to a peak of 29 a week or 1,500 a year (2011 prices) in 1985. Average spending fell in most of the next 15 years and was below 20 from 1997 to 2006. These trends will be affected by consumption levels and household size as well as unit prices. The same survey found that average spending on electricity for households with electric central heating was 15.30 a week in 2011 or 800 a year. Average spending on gas for households with gas central heating was 12.46 a week or 650 a year.15

9 10 11 12 13 14 15

Energy consumption in the UK 2013, DECC Based on average cost per kWh from Tables 2 and 3 Quarterly energy prices, DECC. Tables 4.1.1 and 4.1.2 ONS series CZMN and CHAW Quarterly energy prices, DECC. Table 2.6.2 Family spending 2012, ONS. Table A6 Quarterly energy prices, DECC. Table 2.6.2

In 2012 UK households spent a % of consumer expenditure on electricty, gas and other 6% fuels total of 15.3 billion on electricity, 15.2 billion on gas, 5% 1.7 billion on liquid fuels (fuel oil and heating oil) and 4% 300 million on solid fuels. Total expenditure on these 3% fuels was 32.4 billion up from below 15 billion in 2003. The 2% chart opposite illustrates total spending on these fuels as a 1% proportion of total consumer expenditure. Spending on fuels 0% broadly kept pace with total 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 Source: Consumer Trends, ONS consumer spending over the first 20 years shown here. Since the mid 1980s total consumer spending has increased at a faster rate. The proportion spent on fuels fell from its 1982 peak of 5.4% to 2.1% in 2003. It increased in each subsequent up to 3.3% in 209 the highest share since 1995.16 International comparisons In the first half of 2013 domestic prices for gas were lower in the UK than in the majority of other EU member states. The UK has long had among the cheapest domestic gas in the EU. The chart opposite shows average unit prices for a medium domestic consumer of gas (5,600-56,000 kWh a year), including taxes, for EU states. The UK figure of 4.5 pence/ kWh was 19% below the EU median. Prices in the UK have become relatively cheaper due to the strength of the Euro since early 2008. Even its more recent weakness against Sterling has not reversed much of the earlier gain. All the countries with lower prices were new (post 2004) member states. Sweden had the highest price at 10.4 pence/kWh. The next chart gives data on the average cost of electricity for a medium user (2,500 to 5,000 kWh a year), including

10

Domestic price of gas, medium user, January - June 2013 pence/kWh

0
SE DK IT PT NL GR ES AT FR SK DE BE IE CZ HU LT LU UK EE BG LV SI PL CR RO
Source: Quarterly energy statistics, DECC

25

Domestic price of electricity, medium user, January - June 2013 pence/kWh

20

15

10

0
DK DE CY IT IE ES BE SE AT PT NL LU UK MT SI SK HU FI CZ PL GR FR LV CR LT EE RO
Source: Quarterly energy statistics, DECC

16

Consumer Trends quarter 2 2013, ONS. Uses revised data from 1997 onwards only.

taxes, for all EU28 states. The price in the UK was just ranked in the top half and was 2% below the EU median. VaasaEtt, an energy think tank, publishes monthly domestic gas and electricity prices for major cities in EU countries. Their latest Household Energy Price Index (September 2013) broadly confirms the relative picture shown above. Based on simple exchange rates London had the twelfth most expensive electricity (out of 23) and the seventh cheapest gas (out of 22). London prices become relatively cheaper if real exchange rates are used17 as these make prices in Central and Eastern Europe relatively more expensive and London moves to seventh cheapest for electricity and second cheapest for gas.The report also breaks down these prices by their constituent parts. Cities with the highest prices tended to have particularly large percentage contributions from energy taxes and VAT. 1.3 Impact on fuel poverty

A household is said to be in fuel poverty if it needs to spend more than 10% of its income on fuel to maintain a satisfactory heating regime. Between 1996 and 2003 and 2004 the number of UK households in fuel poverty fell from around 6.5 million to around 2 million. The number of vulnerable households (those in receipt of means tested or disability related benefit) in fuel poverty fell from around 5 million to around 1.5 million over the same period. Energy price rises since then have seen the total number of households in fuel poverty increase to an estimated 5.6 million in 209 before falling to 4.5 million in 2011 (3.5 million vulnerable). Subsequent price rises are expected to increase fuel poverty further.18 A more detailed analysis of fuel poverty trends and patterns can be found in the Fuel Poverty Statistics note.

Why have gas and electricity prices increase so much?

There have been three waves of increased prices for domestic gas and electricity prices since the late 1980s; 2005/2006, 2008 and 2011/12. The earlier analysis has shown that trends in gas and electricity prices have been similar, but there has been some difference in the size of and timing of price spikes. Gas has generally been the single most important fuel used to generate power,19 so we would expect some connection between prices. Generators can switch to other fuels (mainly coal) to a limited extent, but this additional demand increases the price of these fuels. Broadly speaking there are five elements that make up a customers energy bill; the wholesale cost of fuel, the costs of supply transmission, distribution and metering, costs of Government/EU policy, VAT and supplier margins. Ofgem estimates that wholesale fuel costs are the largest single element; 44% of typical dual fuel bills in October 2013.20 The costs of supply are thought to be next most important; around 25% of a typical electricity and 22% of a typical gas bill in December 2012.21 Costs of policy are higher for electricity than gas, 11% compared to 6% according to Ofgem, but estimates vary depending on which policies are included. VAT has remained at 5% since 1997. Ofgems October 2013 estimate of supplier margins for a dual fuel customer was 5% of their bill and company operating costs around 10%.22

17 18 19

20 21 22

Purchasing Power Standards Annual report on fuel poverty statistics 2013, DECC Recent higher gas prices have meant that more coal is used to generate power in the UK than gas, but variations in gas prices still provide a good guide to changes in costs of marginal generation Electricity and Gas Supply Market Indicators, Ofgem (October 2013) Household Energy Bills Explained, Ofgem (February 2013) Electricity and Gas Supply Market Indicators, October 2013 (and earlier)

2.1

Spot wholesale gas prices

5

The chart opposite illustrates Wholesale price of gas in the UK, pence/kWh 5 Daily system average price trends in wholesale gas prices Thirty day average in the UK to October 2013. This clearly shows the very sharp 4 peaks in late 2005 and early 2006 and the generally higher 3 prices during this period. There have been large relative price 2 changes since then, but not on the same scale. There is some 1 evidence of lower levels of price volatility in 2007 and, apart from early 2013, most of the period 0 Oct 05 Apr 06 Oct 06 Apr 07 Oct 07 Apr 08 Oct 08 Apr 09 Oct 09 Apr 10 Oct 10 Apr 11 Oct 11 Apr 12 Oct 12 Apr 13 since 2009. The chart also Source: www.nationalgrid.com shows a steady increase in the wholesale price of gas from spring 2007. The peak in the wholesale price of gas and electricity in late summer 2005 fed through quickly to higher industrial prices and more slowly to higher domestic prices. Falling wholesale prices in the second half of 2006 meant lower industrial prices, domestic prices started to fall in early 2007.
The 2005/06 price spike There were specific aggravating factors behind this spike; the lack of UK import and storage capacity and insufficient imports through the gas interconnector with France. A written answer stated that there was 'general concern' that other governments' rules were diverting supplies of liquefied natural gas away from Great Britain and that supplies through the interconnector were 23 not fully responding to recent strong price signals. Higher UK wholesale prices in winter 2005/06 should have resulted in greater quantities of gas flowing from continental Europe to the UK than were actually seen. The preliminary findings of a European Commission inquiry identified a range of market distortions that have the effect of driving up prices and reducing choice. These were said to largely result from former monopoly suppliers on the continent remaining in dominant positions and effectively preventing new suppliers from entering the 24 market. Increased LNG capacity and new pipelines to the Netherlands and Norway have helped to diversity gas import sources and hence reduce the possibility of supply squeezes.

0
Oct 13

23 24

HC Deb 15 December 2005 c2254w Towards an Efficient and Integrated European Energy Market First Findings and Next Steps, European Commission Conference, Energy Sector Inquiry Public Presentation of the Preliminary Findings. 16 February 2005

10

The more recent price rises Wholesale price of gas in the UK, pence/kWh are less clear from the earlier 3.5 Daily system average price chart as it is dominated by Thirty day average 3.0 the price spikes in 2005/06. They are clear in the chart 2.5 opposite which starts in spring 2006. Prices 2.0 increased from 0.5-1.0 pence per kWh in early 2007 to 1.5 more than 2.0 pence per kWh in spring and summer 1.0 2008. Increased wholesale 0.5 prices led to a round of price rises in early 2008. 0.0 May 06 Nov 06 May 07 Nov 07 May 08 Nov 08 May 09 Nov 09 May 10 Nov 10 May 11 Continued high forward Source: www.nationalgrid.com prices were said to be behind further price rises announced in summer 2008.

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0
Nov 11 May 12 Nov 12 May 13 Nov 13

There was a large amount of volatility after the summer 2008 peak in oil prices, but these daily wholesale prices did not start to fall until February 2009. They reached their recent low of around 0.5 pence per kWh in early autumn 2009. The first domestic price cuts following these price falls did not happen until February 2010. They averaged 6%, a similar price cut to that seen a year earlier.25 Wholesale prices increased steadily back up to around the 2.0 pence per kWh level from early 2011 onwards. The 30-day average neared 3.0 pence per kWh in early 2013, but soon returned to close to its earlier levels. These figures are spot prices and suppliers frequently quote forward gas prices, especially those for the coming winter. Forward contracts can cover the period of a few months or years ahead and suppliers will have a variety of buying strategies to hedge against the volatility in short term prices and ideally to cut their costs. 2.2 Overall assessments and projections to 2020

Ofgem carried out detailed analysis of gas and electricity markets and specifically looked at how prices charged to consumers reflected changes in wholesale forward prices. This analysis can be found in the report of their Energy Supply Probe. The actual information from suppliers on hedging strategies was not published, but concentrated much of their analysis on an 18-month hedge strategy. Statistical analysis of this strategy showed a very close match with retail prices. The broad trends in wholesale costs they estimate are similar to the spot prices given above, but they are much less volatile. The report concluded that there was no evidence that price rises were passes on more quickly than price cuts and no evidence that the big six suppliers were acting as a cartel. After this publication Ofgem started to publish quarterly wholesale/retail price reports which look at changes in the two and alongside their other costs, estimate supplier margins. Ofgem has now started publishing headline indicators of average bills and estimated costs every week. These can be found on their Electricity and Gas Supply Market Indicators pages. One important point to note is that while the main factor in consumer bills is the wholesale cost of fuel, bills are ratcheting up. Over time a given wholesale price implies a higher retail price. This is not just connected with profit levels, although Ofgems evidence suggests that these have increased recently, it is with other costs to suppliers listed earlier. Ofgem
25

ONS series DOBY

11

estimates that overall these costs increased by around 150 for a typical dual fuel customer in the four years to November 2012; a 40% increase.26 The Committee on Climate Change looked at overall price increases between February 2004 and January 2011 and broke the contributory factors down into more detailed categories.
Estimated contributory factors to domestic energy price rises Feb 2004 to Jan 2011
Gas Overall price increase % of increase in unit costs due to: Wholesale energy Tranmission, distribution and metering Carbon price Renewables Energy efficiency funding VAT Estimated increase in annual bill (2004 to 2010) 121% Electricity 79%

66% 20% 7% 5% 295

54% 13% 9% 6% 13% 5% 160

So urce: Ho useho ld energy bills impacts o f meeting carbo n budgets Co mmittee o n Climate Change, December 201 1

This also shows that wholesale costs were the main driver of price rises; however the range of policy-related costs pressures is estimated to have been responsible for 7% of the gas price rise and 28% of the electricity price rise during this period. Energy efficiency funding will have helped to cut consumption during this period to some extent and this is not factored in here as the percentage shares are for unit costs only. The impact of energy efficiency improvements will also be felt into the future through lower consumption. These estimates give a higher policy-related share than Ofgem figures which include the carbon price (through the EU ETS) in wholesale costs. DECC has estimated that current energy and climate change policies added around 33 (5%) to a typical domestic gas bill in 2013 and 80 (14%) to an electricity bill. Their analysis across the full range of current and previous policies suggests that they have not changed gas bills but cut electricity bills by around 3% compared to what they would have been with no policies. This analysis includes the energy efficiency savings from earlier energy billfunded schemes, the impact of policy on wholesale prices, boiler regulations and EU minimum standards of electrical efficiency. Real increases in typical bills to 2020 are forecast to be 6% for both fuels. In 2020 the full range of policies are projected to cut typical gas bills by 1% and electricity bills by 11%.27 The Committee on Climate Change separates out its projections of increases in unit costs from the potential savings on energy consumption that households could make up to 2020. Both elements are needed to calculate an average bill. Their combined estimate is that with current policies average dual fuel bills will increase by around 18% in real terms between 2010 and 2020 and that 60% of the increase will be policy related. With additional feasible energy efficiency policies the 2020 bill could be cut to a level where it was only 2% above the real 2010 level.28

26 27 28

ibid. Estimated impacts of energy and climate change policies on energy prices and bills , DECC (March 2013) Household energy bills impacts of meeting carbon budgets, Committee on Climate Change, December 2011

12

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.29 The gas interconnector with Europe means that the UK is part of the European gas market. Continental gas prices are contractually linked to oil prices so the sharp increase in oil prices have fed through to wholesale gas prices in Europe and the UK. 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. According to the (then) DTI the UKs increasing import dependence is likely to result in higher gas prices in the medium term.30 More recent increases in the price of coal and the higher price of allowances on the EU Emissions Trading Scheme will also increase electricity prices.

29 30

Household energy bills explained, Ofgem (September 2005) Energy Trends September 2005, DTI.

13

3
Table 1

Reference tables

Fuel price components of the RPI

Indices relative to the all-items RPI, January 1987=100

Coal and smokeless fuels Electricity Jan 1987 Jan 1988 Jan 1989 Jan 1990 Jan 1991 Jan 1992 Jan 1993 Jan 1994 Jan 1995 Jan 1996 Jan 1997 Jan 1998 Jan 1999 Jan 2000 Jan 2001 Jan 2002 Jan 2003 Jan 2004 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jun 2013 Jul 2013 Aug 2013 Changes Last 12 months Last two years 100.0 98.5 92.9 88.2 86.4 86.7 86.0 84.9 87.9 85.7 84.8 81.6 81.5 81.3 81.6 85.6 85.1 84.8 91.1 95.7 99.1 103.6 136.1 131.7 127.5 131.2 124.0 124.4 123.6 -1.0% +0.2% 100.0 96.8 97.8 96.8 96.9 102.9 103.5 98.5 101.4 98.1 92.3 83.8 81.1 79.0 74.6 74.1 72.3 72.1 78.1 84.1 102.2 93.7 122.1 108.4 104.8 114.1 114.3 114.7 114.1

Gas 100.0 92.4 91.2 87.5 88.6 88.1 82.2 80.2 84.1 82.8 80.5 74.8 72.7 70.7 66.9 72.2 70.9 71.6 80.5 90.1 121.0 100.9 152.5 138.3 130.2 149.2 151.2 151.2 150.4

Heating Fuel and oils light 100.0 94.2 80.5 104.2 114.3 77.1 82.7 77.1 76.6 79.0 87.6 69.6 58.0 86.0 93.2 79.6 92.5 89.8 104.0 135.3 116.7 159.9 145.3 177.8 205.1 206.0 187.9 191.8 191.0 -3.6% -0.5% 100.0 95.2 93.9 92.6 93.4 94.2 92.2 88.7 91.8 89.8 86.3 78.7 76.1 75.3 71.9 73.7 73.0 73.2 80.9 89.6 110.4 100.0 134.9 123.0 119.9 132.6 132.5 133.0 132.3 +4.2% +11.1%

-100.0% -100.0% -100.0% -100.0%

So urces: ONS series CHA W, CHGB , DOB W, DOB Y, DOB X, DOB Z

14

Table 2

Average annual domestic gas bills for a typical consumer in Great Britain
2012 prices

Standard credit Home Non-home suppliers suppliers 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
No tes:

Direct debit Home suppliers .. .. .. .. .. .. 420 428 384 367 361 356 374 375 384 433 523 540 630 712 684 747 835 Non-home suppliers .. .. .. .. .. .. 393 371 341 335 328 321 327 341 359 402 462 553 636 690 652 687 743

Prepayment Home Non-home suppliers suppliers .. .. .. .. .. .. 478 486 453 424 410 400 414 415 430 482 595 662 731 808 713 774 862 .. .. .. .. .. .. 478 468 446 438 429 414 414 425 414 460 539 624 689 775 705 738 802

All 470 473 465 435 443 460 450 457 431 408 392 380 393 397 403 459 548 605 684 758 707 760 839

All .. .. .. .. .. 437 420 428 379 359 351 345 356 362 374 419 490 548 634 698 663 707 773

All 500 498 492 461 482 488 478 486 453 426 413 401 414 417 425 476 575 647 712 791 709 754 828

.. .. .. .. .. .. 450 458 438 423 410 400 413 415 417 478 589 615 684 765 715 773 865

.. .. .. .. .. .. 418 387 360 352 345 339 346 358 374 421 493 593 683 746 697 741 804

B ritish Gas is the ho me supplier, no ne ho me suppliers are all o thers Data befo re 2007 are fo r Quarter 4 fro m the previo us year to quarter 3 o f the named year. Fro m 2007 data are fo r the calendar year Data adjusted to 201 0 prices using Octo ber 201 1GDP deflato rs Quarterly energy prices, DECC, Table 2.2.1

So urce:

15

Table 3

Average annual domestic electricity bills for a typical consumer in the UK

2012 prices

Standard credit Home Non-home suppliers suppliers 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
No tes:

Direct debit Home Non-home suppliers suppliers .. .. .. .. .. .. .. .. .. 341 331 318 313 308 311 337 378 418 472 472 442 461 479 .. .. .. .. .. .. .. .. .. 312 307 295 283 280 280 304 349 376 415 419 398 430 451

Prepayment Home Non-home suppliers suppliers .. .. .. .. .. .. .. .. .. 376 365 348 342 332 341 367 410 448 503 503 475 497 518 .. .. .. .. .. .. .. .. .. 361 363 340 324 324 320 353 421 439 489 475 451 476 489

All 404 415 430 420 416 421 405 397 367 353 341 325 315 310 311 339 391 427 476 480 452 479 500

All .. .. .. .. 411 415 397 386 353 339 325 310 300 295 295 320 362 393 438 438 413 440 460

All 435 447 463 451 445 449 433 421 390 376 364 347 336 330 332 362 415 445 497 489 463 486 501

.. .. .. .. .. .. .. .. .. 356 345 331 324 320 321 350 396 442 495 502 473 496 516

.. .. .. .. .. .. .. .. .. 328 320 308 295 294 295 323 383 408 453 455 431 464 487

Fo rmer public electricity suppliers are ho me supplier within their o wn areas, no ne ho me suppliers are all o thers Data befo re 2007 are fo r Quarter 4 fro m the previo us year to quarter 3 o f the named year. Fro m 2007 data are fo r the calendar year Data adjusted to 201 0 prices using Octo ber 201 1GDP deflato rs Quarterly energy prices, DECC, Table 2.3.1

So urce:

16