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2020 foresight: will UK energy policies lead to increased energy bills?

Posted on 27 November 2012

The Government unveiled two big energy policies last week, representing the biggest shake-up of the industry since privatisation in the 1990s. First, Ed Davey announced more detail on how energy suppliers would be forced to simplify their tariffs and put their customers on their cheapest available tariffs. Two days later, DECC announced some of the key measures in the Energy Bill which is designed to encourage new investment in low carbon electricity generation, partly to replace the one fifth of our existing electricity generating capacity which is due to close in the next decade and partly to achieve our climate change targets. The immediate question everyone asked is: “will these policies lead to increased energy bills?” The meaning of life would be an easier question. Starting with the policy to simplify tariffs, unless energy suppliers are willing to give up some of their profit margin, which seems unlikely, the overall effect of that change is likely to be neutral. In other words, on average across the whole population, bills probably won’t change much. But although the average won’t change much, there will be winners and losers because the cheapest tariffs available to frequent switchers will be withdrawn. Tariffs will cluster closer to the average and the wide spreads which currently exist between a supplier’s cheapest tariff and their most expensive tariff will narrow. Moving on to the Energy Bill, the crystal ball gets cloudier. The new subsidies for low carbon electricity could add £95 to the average household bill by 2020, according to DECC, but this will be offset by a reduction in the energy we use thanks to energy efficiency policies, saving £94 by 2020. Personally, I would take these figures with a pinch of salt. They are best guesses designed to justify Government policies. Who really knows what the cost of energy will be in eight years’ time? The superficial debate about energy bills overlooks three very important benefits of these policies, which we welcome: we’ll be less dependent on energy imports and world oil prices, we’ll be greener and more sustainable and we won’t all need PhDs in Mathematics to understand our energy bills. In any case, by then, Co-operative Energy will be the market leading energy supplier and, whichever political party occupies 10 Downing Street, consumers will be back in power!

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