Sunday, 8 February 2009

Energy Bills

The issue of the costs of domestic gas and electricity was raised last Monday (appropriately a very cold, snowy day) -

Lord Tomlinson asked Her Majesty’s Government what is their response to the recent report of the Organisation for Economic Co-operation and Development which indicated that energy utility bills in the United Kingdom rose by 16.7 per cent in the year ended November 2008.

The Minister of State, Department of Energy and Climate Change & Department for Environment, Food and Rural Affairs (Lord Hunt of Kings Heath): My Lords, the Government monitor energy prices and are well aware of the significant rises in the UK over the past year. The Government expect reductions in those prices following reductions in wholesale prices. To improve transparency on energy prices, the Chancellor and the Secretary of State for Energy and Climate Change have asked Ofgem to publish quarterly reports on wholesale and retail prices.

Lord Tomlinson: My Lords, is the Minister aware that in those OECD figures not only was there the 16.7 per cent increase in the United Kingdom, but in the same survey there was a reduction of 2.4 per cent in the OECD as a whole, a reduction in the United States of 13.3 per cent and a very small increase in the G7? Is it not the case that the astronomical increases in energy prices in the United Kingdom, despite the too little, too late cut from British Gas, show that the benefit to consumers from competition in energy, which was promised at the time of privatisation, has yet to reach the British consumer?

Lord Hunt of Kings Heath: My Lords, I well understand my noble friend and public concern. The Government have impressed the need to see retail energy prices reduced as soon as possible to reflect changes in wholesale prices. As well as taking the percentage increase, one has to look at the comparator of prices generally. The UK domestic electricity price is below the EU 15 median and domestic gas prices are the lowest in the EU 15 for July to December 2008.

Baroness Wilcox: My Lords, will the Minister admit that high fuel prices are causing poor British people today to underheat their homes in these freezing conditions, threatening their lives? Is he not ashamed of his Government for doing nothing at all to force energy suppliers to bring down prices for our poorest families?

Lord Hunt of Kings Heath: My Lords, the Government have been very active in their work in relation to the companies. There has been an Ofgem probe as a result of the intervention, which has led to recommendations about problems of differentiation in prices. The Government have already invested £20 billion in relation to fuel poverty. Another package was announced last autumn. We are not at all complacent. We continue to meet the energy companies. We have said that if they do not respond positively to the current Ofgem consultation, we will make interventions.

Lord Addington: My Lords, I accept that the Government have promised that they will make interventions, but can we have some idea of roughly when these will occur? If we do not have a figure for that, can the Minister take back to his colleagues that they should not make such statements in the first place?

Lord Hunt of Kings Heath: My Lords, there is a consultation by Ofgem, which finishes this month. It has been made abundantly clear that if the companies do not respond satisfactorily as a result of that consultation, we will certainly consider intervention.

Lord Campbell-Savours: My Lords, would not low energy users benefit directly from the rising block tariff system? How is the proposal developing within Government? Are we getting anywhere?

Lord Hunt of Kings Heath: My Lords, the rising block tariff essentially means charging a lower rate for the first proportion of energy used. The Government are in discussion with Ofgem about how that could be considered in more detail. However, there are concerns about that, because fuel-poor people, out of need, may consume more energy than the average. Clearly, as we discuss this further with Ofgem, it has to be considered very carefully and looked at in the round.

Lord Lawson of Blaby: My Lords, is the Minister aware that the noble Lord, Lord Turner, the chairman of the climate change committee, made it clear that the only way in which the Government’s binding commitments for emissions reductions can be met is by a significant increase in energy prices? In light of that, has his department calculated how large an increase in energy prices is likely to be required to meet the 34 per cent reduction in emissions that the committee said was necessary by 2020?

Lord Hunt of Kings Heath:My Lords, the Government are not in the business of forecasting future prices. We listened carefully to the advice of the noble Lord, Lord Turner, and his committee. As the noble Lord will know, energy companies are expected to make considerable investments in the energy field in the next few years. It is a mixture, including new nuclear stations. We also wish to see a considerable increase in the amount of renewable energy. I am confident that we can achieve that.

Lord Lea of Crondall: My Lords, the noble Lord, Lord Lawson, made a fair point in one sense, but have not the Government also made a welcome decision? In this year’s Budget there will be a parallel financial budget relating to the short and medium-term fund and the raising of taxation through CO2-type tax, some of which could be recirculated so that it does not have negative effects on prices for lower-paid people. That is an important balancing factor to what is being discussed.

Lord Hunt of Kings Heath: My Lords, my noble friend raises an important point. A premium had to be paid in relation to the cost of renewable energy; that is well understood. In general—I return to the question of whether we can meet the commitments to reduce greenhouse gas emissions—it is clear that we need a mixed economy in relation to energy. That will include the development of new nuclear, and increased renewable energy as well.

Lord Howell of Guildford: My Lords, we may need a mixed economy but we also want to avoid a mixed policy. The Minister referred to a premium for renewables. At present, fossil fuel prices—oil, gas and coal prices—are 75 per cent lower than they were a year ago, which means that the premium for renewables such as wind power has to be vastly increased. Is there not a difficulty there about how that will be raised? If it is raised by higher energy prices, how is that consistent with our proper concern about lowering energy prices?

Lord Hunt of Kings Heath: My Lords, the noble Lord is right to point out that wholesale prices have come down; as my noble friend said, we had the announcement from British Gas. We hope to see more reductions in domestic prices over the next few months. Lower energy prices are, of course, important to the economy as a whole. Equally, as part of our climate change policies, renewable energy in this country must be increased. It is an important part of the contribution to future energy supply. Clearly, a premium must be paid in that regard. The essential point is to have a balance.