By Max Clarke
M&C Energy Group, one of the UK’s largest purchasers of energy, comments on topics discussed at yesterday’s Select Committee on electricity market reform.
Senior energy analyst, David Hunter, interviewed today on BBC Radio 5 Live’s Drive programme:-
“This is the third oral evidence session in which key stakeholders aim to overhaul the electricity market. Areas tackled include rising gas and electricity bills, the energy security challenge, climate change mitigation and competition in the UK electricity markets.
“There is no doubt that the energy companies represented will refute claims of excessive charging, however there is no hiding the huge increases in profit margins - an average of 38% according to OFGEM in December.
“After suffering the coldest winter in years, the government is under pressure to take control of run-away energy prices and introduce measures that protect consumers. Insisting on a minimum notice period for price increases has been mooted, but not acted upon by the regulator thereby playing right into the hands, and indeed the pockets, of the energy companies.”
Research undertaken by M&C Energy Group identified that consumers wait longer for announced price reductions to come into force, but increases are implemented with unseemly haste.
Mr Hunter explains: “In the last three years, suppliers have given customers an average of nine days’ notice of their intention to put up bills, but are making householders wait an average of twenty days for price discounts to come into effect. Furthermore in the last three years, 75% of price cuts were made at the end of March to coincide with the return of warmer weather, whereas two thirds of price increases were announced in late summer and early winter in time for peak energy usage. “
More pressing however is the fragile state of the UK’s energy infrastructure, which is increasingly exposed to imported fuels and ageing power stations.
Mr Hunter explains:
“Reports that France could see a power shortfall by as soon as 2013 will put greater pressure on the UK’s dwindling supply and force up prices. Discussed today were ways to attract the 200 billion required to replace the UK’s ageing infrastructure to bridge the looming energy gap. As any investment must be privately funded, the government has proposed ways to incentivise private investors. These include capacity payments, ‘feed-in’ tariffs to support low carbon power sources, and a ‘floor’ on the carbon price. The balance the government must strike is to provide a healthy incentive for private organisations to invest without writing a blank cheque.
“Reforming a market which is frankly on its knees and dominated by a few private organisations looking to increase shareholder returns is a difficult task — getting it right will deliver major economic benefits for Britain, getting it wrong is simply not an option.”