Britain facing energy crisis that could see families pay extra to keep the lights on while neighbours ‘sit in the dark’

Britain’s increasing reliance on “intermittent” renewable energy means that the country is facing an unprecedented supply crisis, a senior Ofgem executive has warned.

Andrew Wright, a senior partner at Ofgem and former interim chief executive, warned that households could be forced to pay extra to keep their lights on while their neighbours “sit in the dark” because “not everyone will be able to use as much as electricity as they want”.

He warned that in future richer customers will be able to “pay for a higher level of reliability” while other households are left without electricity.

Electricity pylons rising through mist at dawn, view of The Marshwood Vale from Lambert's Castle, Dorset, England
Electricity pylons rising through mist at dawn, view of The Marshwood Vale from Lambert’s Castle, Dorset, England CREDIT: ALAMY

Mr Wright said that because Britain has lost fuel capacity because of the closure of coal mines, there is now “much less flexibility” for suppliers.

In a stark warning about the future of energy supply in Britain, Mr Wright said that consumers could be forced to pay more if they want to ensure they always have power.

“At the moment everyone has the same network – with some difference between rural and urban – but this is changing and these changes will produce some choices for society,” he told a recent conference.

“We are currently all paying broadly the same price but we could be moving away from that and there will be some new features in the market which may see some choose to pay for a higher level of reliability.

 “One household may be sitting with their lights on, charging their Tesla electric car, while someone else will be sitting in the dark.”

Mr Wright, who Ofgem last night insisted was speaking in a “personal capacity” appeared to lay blame to any future supply issues on the recent focus on renewable energy.

He said: “The system we are all familiar with has some redundancy built into it. It was pretty straightforward and there was a supply margin, but increasing intermittency from renewable energy is producing profound changes to this system.

“We now have much less flexibility with the loss of fossil fuel capacity. Coal has been important, but this is disappearing.”

Wind turbines in Scotland
Wind turbines in Scotland CREDIT: DANNY LAWSON

 He added: “In the future not everyone will be able to use as much as electricity as they want, and there will be a need to re-write the rules.”

An Ofgem spokesman said: ” Ofgem is fully committed to delivering secure supplies for all consumers now and in the future. This is our number one priority. This is why we have driven up network reliability standards and worked closely with Government to ensure secure energy supplies.”

“In order to protect consumers every regulator has to look a possible future challenges. Mr Wright was talking at an University conference in a personal capacity and looking at possible issues that might or might not arise in 10-15 years time.”

Philip Hammond, the Chancellor, has previously said that Britain will need to invest “eye-wateringly large sums of money” just to keep the lights on.

The Chancellor put the cost at around £100 billion in the next 20 years to ensure the country meets its energy needs.

Existing energy customers barred from cheapest deals

Four of the UK’s largest energy companies have been barring their own customers from some of the best deals for gas and electricity, the BBC’s Moneybox programme has learnt.

The cheapest deals are often reserved for new customers only.

Meanwhile existing customers have been offered deals which can be hundreds of pounds a year more expensive.

The four companies, E.ON, EDF, SSE and British Gas said they were simply responding to changes in the market.

While the British Gas tariff has now been withdrawn, other suppliers are still restricting their offers to new customers only.

Such deals were originally banned by the regulator Ofgem in April 2014. Following a recommendation from the Competition and Markets Authority (CMA) in April this year, Ofgem let it be known it would no longer enforce these rules.

‘Gob-smacked’

The discovery of such deals has as come a surprise to some leading industry figures.

Ken Geddes is the chief executive of Scottish-based Energylinx, the fourth biggest energy price comparison business.

When the BBC told Mr Geddes about the new tariffs, he declared himself “stunned” by the difference between the prices some companies offered new and existing customers.

Mr Geddes immediately tested a new-customer-only tariff from E.ON, launched in mid-September.

He first applied as an E.ON customer and then as a customer of another company. The difference in the the two prices he got from E.ON was £260.

“Having spent over a decade doing this job, I don’t think I’ve ever seen that differential”, Mr Geddes told the BBC. “I’m just gob-smacked as to the difference in price”.

four gas rings

 

‘Filtered out’

Large differences in price between new and existing customers are not confined to E.ON.

In the summer, British Gas launched a new-customer-only one year tariff offered exclusively through Uswitch – the UK’s biggest energy price comparison website.

For new customers with average household energy consumption, the British Gas “Home Energy Exclusive Jun 17” tariff cost £735 a year. But for existing customers – barred from that deal – the best British Gas price for the same amount of energy was £989.

That British Gas tariff has now been withdrawn but others are appearing.

The SSE new-customer-only tariff, launched in September, offered new customers on average consumption a year’s energy for £759 . For existing customers, SSE’s best deal cost £972 – a difference of over £200.

Customers were unlikely to have learned such low-priced tariffs were available from their companies even if they searched Uswitch and Energy Helpline.

That’s because such websites start by asking users for the name of their existing energy supplier. New-customer-only deals from that supplier are then filtered out.

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EDF and British Gas bills

‘Very sorry’

As a long-standing customer of EDF, I wanted to find out what tariff I would be offered.

In a web-chat, I was told the tariffs available to me were: “Blue+ Price Protection Sep 2017” – costing £133 more than EDF’s new-customer-only tariff, and “Blue+ Price Freeze Sep 2018” costing almost £300 more.

Were these the “very best tariffs EDF offers?” I asked the agent.

“Yes” was the emphatic reply.

When pressed about the much cheaper new tariff EDF had just launched, the agent replied, “I’m very sorry. This is only for new customers – not existing customers”.

On Friday, EDF relaunched their new-customer-only deal, cutting the price by around £50 a year. So it’s a better deal than before but it’s still not for existing customers.

Strategy

Not all major energy suppliers plan to offer such tariffs.

Scottish Power’s commercial director Colin McNeill told the BBC his company would not offer them.

“These tariffs must stop,” Mr McNeill said. “We must recognise that we are still not a trusted industry, and perceived sharp practices do the industry no favours.”

With Scottish Power, he added: “Any of our customers can switch freely to any of our tariffs at any time.”

The four energy companies which have offered the new-customer only tariffs, E.ON, EDF, SSE and British Gas, all say that they are responding to changes in the energy market and that their new tariffs are part of a strategy to serve a wide range of customers.

All four companies declined the BBC’s invitation to be interviewed about their new exclusive offers.

Ofgem’s chief executive Dermot Nolan told the BBC that Ofgem had acted on the CMA’s recommendation “to make energy competition more similar to telecoms because on the whole that will mean lower prices and better deals for consumers”.

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NEW YEAR, NEW BILL RISE Electricity prices could rise by 10% in January and green taxes are to blame

Big Six energy companies set to hike prices in New Year because of government-imposed extra energy taxes

This increase could be as much as £51 to the average annual electricity bill of £510 with rises planned for the New Year.

Heating bills are also set to soar this winter due to increasing gas prices.

According to energy regulator Ofgem, around seven per cent of the average bill, roughly £78, is put towards paying for environmental and social policies brought in by the government.

Energy supply cuts may send fuel bills soaring

Householders are being warned to brace themselves for a rise in their electricity bills as a series of freak events conspires to send wholesale prices rocketing.

Safety concerns at France’s nuclear power plants operated by the energy company EDF have led to many reactors being temporarily shut down. There have been similar suspensions in Belgium. In addition, a lack of rain in Norway and Sweden – whose hydro plants generate large amounts of electricity for their European neighbours – has limited both countries’ energy production.

The combined effect has been to send the price at which energy companies buy their power through the roof.

 

Last Monday, a UK energy company buying power on a next-day contract would have paid about £150 a megawatt hour. The average price a year ago was £38.10. For companies that had not agreed forward contracts, the cost has soared to more than £1,000.

Several smaller electricity suppliers have already raised prices or withdrawn competitive tariffs. Energy analysts say it will not be long before the big operators follow if, as looks possible, this winter starts with a protracted cold snap.

An index tracking the price power companies pay for electricity, produced by the consultancy Cornwall Energy, is at its highest since it started in 2012. “It is unusual for there to be significant volumes of outages in the French nuclear fleet, however this is also one of our tightest winters in recent times in terms of extra capacity, which has also influenced how high prices rise,” said Cornwall analyst Tom Edwards.

Twenty of EDF’s nuclear reactors have been stopped for checks on their steam generators, five more than would normally be shut down for maintenance at any one time. In July, EDF was forced to lower its 2016 nuclear output target to 395-400 TWh (terrawatt hours) from 408-416 TWh because of the need for “additional controls during the second half of the year” to show its reactors can operate safely. Last month, the group revised its nuclear output target again, from 380-390 TWh to 378-385 TWh.

A spokeswoman said it was looking at ways to ensure it could maintain electricity generation by using its thermal and hydraulic plants. She said EDF would buy more electricity on the European wholesale markets if necessary and use “contractual flexibilities with some industrial customers and individuals to limit their electricity consumption”.

Edwards said supply issues were currently to blame for price rises, but extra demand could soon be a factor. “The increase was primarily driven by rising wholesale prices, so the effect will be driven by supply and demand issues,” he said. “If it’s a cold winter and supply issues remain, then this should persist for the next three to four months. There has been some concern raised about how suppliers will cope over the winter if they aren’t able to hedge against these short-term price rises.”

 

Earlier this month, the Met Office predicted that the chance of the UK experiencing temperatures in the “cold” category was 30% – 1.5 times the usual risk – and warned that “contingency planners and others with sensitivity to cold weather might need to consider this elevated level of risk”.

Larger operators that generate their own electricity can protect themselves against rising wholesale costs. But this is not so for smaller operators. Earlier this month, Southend Energy, one of the larger independent operators, announced rises of 9% and 8.4% respectively on its fixed and greener tariffs.

“Some suppliers have increased the price of their fixed tariffs following the recent rise in wholesale energy prices, which is putting pressure on all suppliers’ costs,” said a spokesman for the energy markets regulator, Ofgem, which suggested many consumers could save about £300 a year by switching.

Edwards said the current uncertainty would be felt by consumers in the longer term. “Suppliers will increase their standard variable tariffs if costs do rise substantially, but this

will be affected by their hedging ahead of this winter. We would expect fixed tariffs in the future to be higher to take into account expected risk of short-term price volatility.”

B7EFWN ELECTRICAL POWER PYLON WITH SUPPLY CABLES OR LINES AGAINST A CLOUDY SKY ELECTRIC. Image shot 2008. Exact date unknown.

POWER PRICE SURGE Energy bills set to soar as Big Six gas and electricity giants prepare to pass on wholesale price rise

Sources say the average standard variable tariff could be set to rise 13 per cent from £1,063 to £1,201 per year

FAMILIES face a hike in their energy bills as power giants get set to pass on increases in the price they pay.

Wholesale gas and electricity prices are rising after a period of staying steady or falling.

 

Sources say energy firms are looking to pass on the price rises — despite The Sun’s campaign to highlight how customers are already overpaying.

It could see the average standard variable tariff rise 13 per cent from £1,063 to £1,201 per year.

Some firms could delay an increase as they “hedged” against wholesale costs rising by pre-buying power at lower rates earlier this year.

A source at one of the Big Six suppliers said: “Price rises are coming.

“None of us bigger firms will want to go first but it will come to a point where we have to.

“Hiking before Christmas will mean we get a lot of grief so firms will sit there now doing the maths to see how long they can hold off.

 

“The bigger ones can hold off a bit longer than the smaller ones.

“They pre-buy more power and also have deeper pockets to soak up tighter margins for a while.

“But don’t be surprised if some of the smaller suppliers raise prices.”

E.ON has already warned investors they have not hedged enough for their UK business.

 

Co-op raised the price of their standard variable tariff last month.

Critics said the Big Six are quick to pass on price rises but slow to pass on any savings.

Will Hodson, of consumer collective TheBig Deal.com, said:   “When wholesale prices dropped it took them forever and a day to pass those savings on.”

E.ON said it would not speculate on pricing.

main-boris-double-vat-energy-bills

How has Brexit affected energy businesses?

Brexit has had an impact on investment in some energy projects.

That’s the view of some of the energy experts who was at our Power Ride charity event in London last week through which we raised more than £1,200 to support Parkinson’s and our Re-energise Nepal campaign.

When asked about the effects of the UK voting to leave the EU, Chris Johnson, Finance Manager at Net Zero Buildings said: “The first impact is the drop in the exchange rate. They have recovered but we are still suffering from those for the raw materials. Our SchoolHaus side of things uses Canadian seeder, PV panels that are imported and we’ve noticed a hit on those but we’ve limited as much as we can.”

Chris Kimmell, Commercial Manager at Open Energi said: “Financiers are slightly wary of investing in new things. That’s just yet more uncertainty to add to lots of other uncertainty that’s been piled on top of the energy industry unfortunately. Customers, some of ours are less willing to invest as well so for us we’ve seen a big impact on the financial point of view.”

However Dave Worthington, Managing Director at Verco, believes it’s too early to say Brexit has affected investment in the energy efficiency sector.

He added: “It has certainly affected some of our core clients’ business, construction and property particularly, now we’ve seen the value of property go down and that’s hit development of pipelines.

“Our clients I think are still going ahead with things they were planning to do in the energy efficiency space. We’re still seeing that whole area grow because the long term trajectory is still there, the government has signed up to the fifth carbon budget, we’re seeing the government now saying they are going to ratify the Paris Agreement so there’s a non-stopable momentum in corporate response to climate change.”

Other energy experts who attended the event said the money invested to support the construction of Hinkley could have been “better placed elsewhere”.

Energy providers encouraged to cut prices as wholesale costs reach near-decade low

UK gas and electricity wholesale prices have dropped to their lowest level in almost a decade, sparking calls for suppliers to cut bills by 10%.

Prices have averaged at nine-year lows over the first quarter of this year, according to the ICIS Power Index, which analyses energy markets.

Ben Wetherall, head of gas at ICIS, said: “UK gas demand was affected by a mild winter, but more gas-fired generation helped to keep prices stable.

“Cheaper gas prices, the additional emissions costs for burning coal, and less wind generation than a year earlier all helped to boost demand.”

Power prices fell less than gas as traditional generation was squeezed by more renewable capacity.

Zoe Double, head of power at ICIS, said: “Some older coal-fired plants closed during Q1 2016, so with less flexible supply available to the market, market participants are reluctant to sell power for winter delivery at lower prices because of the risk of shortages.”

Comparison website uSwitch called on suppliers to reduce standard tariffs by a further 10% in light of the new figures.

Ann Robinson, director of consumer policy at uSwitch.com, said: “Today’s figures prove, yet again, that consumers have been short-changed by token gesture price cuts.

“Whilst any reduction is welcome, the fact remains that the average Big Six dual fuel bill has fallen a mere 5.7% since the start of last year.

“Given record-low wholesale costs, suppliers must do the right thing and reduce standard tariffs by a further 10%.”

Energy and Climate Change Secretary Amber Rudd wrote to energy firms in the middle of last year asking them to pass on a fall in wholesale costs to consumers.

But recently announced price cuts by the Big Six, which all came into effect last month, are calculated to save customers on standard tariffs just £30 a year.

Which? executive director Richard Lloyd said: ” Customers will question why energy prices remain high and suppliers have only cut gas prices by a measly amount, when wholesale prices continue to fall.

“The Competition and Markets Authority (CMA) found that customers collectively are overpaying on their energy by £1.7 billion and our own research shows that customers could be saving up to £400 by moving away from the Big Six.”

An Ofgem spokesman said: ” With wholesale prices continuing to fall, energy suppliers need to justify their prices to you otherwise they risk losing your business. Increasingly, we are voting with our feet with switching up by 15% last year and over 40% of switchers moving to independent suppliers.

“Ofgem is working with the CMA to further increase competition and will be looking to introduce the CMA’s reforms as soon as possible. Help is available to get a better deal from www.goenergyshopping.co.uk and savings of over £200 are possible.”

Energy UK, which represents suppliers, said: ” Energy companies are bringing down their prices with cheaper tariffs launched almost every week. Since January 2014 the cheapest tariffs have fallen by around £200. There are now over 50 deals under £1,000 being offered by 37 suppliers operating in the market.

“Wholesale prices make up less than half of the average bill and the majority of the rest falls outside suppliers’ control so there will always be a difference between wholesale price falls and what customers actually pay.

“Suppliers are also making it quicker and easier for customers to find the tariff right for them. Almost four million customers switched supplier in 2015 and, currently, around 400,000 households are signing up to new deals every month.”

Amber Rudd said: “I’ve spoken to bosses at the Big Six to make crystal clear that the Government expects suppliers to pass on cost reductions to the families and businesses paying the bills. The cuts in tariffs by the Big Six are a good start but there’s more to do.

“This Government is playing its part – committing to take forward recommendations from the biggest ever investigation into the energy market and pushing ahead with plans so people can switch supplier within 24 hours. This will help keep bills as low as possible.”

 

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£511m saved on energy bills by negotiating

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According to a You Gov survey commissioned by npower, Small and medium sized businesses (SMEs) in the UK saved £511 million on their energy bills in the last 12 months and around 45% of them saved up to £10,000 per year.

This is all because they negotiated a better deal from their suppliers, with as many as 93% of SMEs stating that taking the time to negotiate contracts really is worth while with average savings per business valued around £2,800.

However, despite the financial benefits of negotiating with energy companies, still 70% of SMEs don’t think to ask for discounts and price savings.

To encourage more businesses to negotiate with their suppliers, the Big Six has launched a campaign which offers tips on how to get the most out of their negotiations, including the importance of research and planning ahead.

Philip Scholes, Head of npower Business said: “This research shows that businesses across the UK are reaping the dividends of negotiating their supplier contracts. However, not all firms are entering discussions with their provider, which could prove to be a missed opportunity in the long term.

“That’s why we launched this campaign – we’d encourage all British businesses to look at their supplier costs and particularly their annual energy costs to help improve their bottom line.”

Earlier this month, the CMA stated SMEs paid around £280 million more per year between 2007 and 2014 to the Big Six.