Britain has the highest domestic electricity prices in Europe with customers paying double the continental average.
The typical British household pays 14.8p/kWh before tax while the pre-tax price in Bulgaria sits at just 5.75p/kWh.
While our tax sits much lower at 5% than most of the rest of Europe, Britain has still seen the biggest prices increase in the last two years with a 12% rise versus a 3% European average.
So why are our pre-tax prices so high and how are they made up?
Pre-tax prices include the wholesale price of electricity, transmission costs and other charges, such as funding green energy projects and subsidising low-income households.
With that in mind, many are blaming expensive energy projects such as wind farm subsidies, smart meter rollout and nuclear power plant development, for the hike in prices.
Steve Thomas, professor of energy policy at the University of Greenwich explained his fears around the smart meter rollout – all homes will have one installed in the hope it will educate consumers and help cut their energy usage.
“For £11bn, it’s a hell of an expensive project to drive down bills. I would be amazed if it delivers on-time and on-budget.”
Others are claiming that a lack of competition between suppliers is to blame along with a general apathy among consumers to push for lower prices.
Dual fuel customers could save an average of £160 a year by switching to a cheaper deal according to the Decc. Roger Witcomb of the Competition and Markets Authority explains:
“There are millions of customers paying too much for their energy bills – but they don’t have to. The result is that some energy suppliers don’t have to work hard to keep these customers.”
While suppliers have always been in the firing line, having suffered from the CMA alleging that the big six have been overcharging customers for years and Ofgem producing SMI reports based on fiction, it’s refreshing to see that people are beginning to see the bigger picture.
What’s really to blame?
Far from it being the suppliers feathering their nests, most of the price hikes are down to network upgrades and investment in new generation capacity development.
With a whopping 54% of generated power being lost between the source and the end user, Britain has had to invest in maintenance work to make our transmission and distribution networks more efficient.
The government is also investing in new developments to create clean energy and reduce our reliance on fossil fuels. Unfortunately these low-carbon technologies will have a significant impact on bills.
“We need to ensure that the process of bringing clean electricity into the market is carried out efficiently and transparently and at the lowest possible cost,” said Mr Witcomb of the CMA.
In fact the government has invested £37 billion in renewable energy development since 2010 so it’s inevitable that prices will have risen to cover the funding.
The current focus is on nuclear development which is incredibly costly – even more so than coal-fired power or renewable energy. The proposed Hinkley Point power plant is set to add £13 to annual energy bills so it doesn’t look like prices are likely to come down anytime soon.
Now is a good time to lock-in to a longer-term contract and protect your business against future price increases.