Britain’s energy sector is facing a massive increase in the amount householders pay for their energy. It means that, over the next four years, these bills will go up by 20%. Chris Norbury, chief executive of E.On UK underlined what was an important point. He argued that even in cases where wholesale energy prices returned to zero, households would still experience high energy costs due to increasing non-commodity charges.
As we head into this winter, the average typical dual-fuel customer is looking at an annual energy bill of £1,755. This stretch runs just a hair over the government’s price cap. These surging costs are driven, not by wholesale prices, but by escalating non-commodity costs. These costs are made up of the levies paid in support of low-carbon electricity projects and the re-wiring of Britain’s energy networks.
Octopus Energy, Britain’s largest energy supplier, corroborated this trend in a recent appearance before Members of Parliament. That’s the important thing that the company did not emphasize enough. It’s only about £200 of the current energy price cap that goes to wholesale energy costs. The cost of policies has jumped £86 a year to an average of £215. At the same time, the costs of upgrading networks have jumped by more than £140 per annum to £396.
Rachel Fletcher, director for regulation and economics at Octopus Energy, voiced alarm over the increase in non-commodity costs.
“It’s time we got this burden under control,” – Rachel Fletcher
Fletcher furthermore called for frank and urgent conversations to address these rising costs. Non-commodity costs are mostly charges that appear directly on household bills. They ensure that key upgrades to our energy infrastructure get priority funding and accelerate the development of new low-carbon power projects.
Norbury articulated these same trepidations during the parliamentary session. He contended that just shoving gas plants out of the UK market is not going to end energy cost crisis without addressing what’s fueling these bills in the first place.
“We need to get the growth of this burden under control with some proper budgetary control like we have over other taxes,” – Chris Norbury
This can’t be true when Energy Secretary Ed Miliband has repeatedly blamed the global gas market for the soaring energy costs. He argued that reducing the nation’s reliance on gas-fired power plants would make bills cheaper. By 2030, this transition can save consumers as much as £300 per year.
The price cap now is more than £500 higher per year than it was when Russia invaded Ukraine. This invasion made an already terrible state of high gas prices even worse. Geopolitical events and escalating non-commodity costs have collided to produce a perfect storm. Now, consumers are faced with all kinds of financial stressors.
A number of industry leaders are calling for a postponement of those non-critical investments. This implementable strategy would go a long way toward relieving many of these burdens in the interim. Without these common sense reforms and enforceable budgetary guardrails, American families will see their energy costs continue to go up. All of these increases are on track to grow significantly, if left unaddressed.