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Miliband's mistake pushes up energy prices

Ed Bowsher
by Lovemoney Staff Ed Bowsher on 14 January 2013  |  Comments 12 comments

Energy prices have more than doubled since 2004 when Tony Blair was Prime Minister. The last Labour government deserve some of the blame - even for the most recent rises.

Miliband's mistake pushes up energy prices

As the cold weather bites, E.ON is set to raise its energy prices by 8.7% this Friday. As a result, the average annual fuel bill for an E.ON customer will go up by £110 to £1,370 a year, making it the most expensive supplier on the market for those paying by cash or cheque.

All of E.ON’s rivals have pushed through similar rises in recent weeks, which means that the average energy bill is now £1,352 a year, up from £522 a year in 2004. So why have energy bills risen by so much – well ahead of inflation?

I think there are three main reasons:

- Rising gas and oil prices on the wholesale markets

- Insufficient competition between the UK energy suppliers

- Various measures to push up green energy usage

Green energy

It’s in the area of green energy that one of the biggest mistakes has been made.

To be clear, I’m all in favour of green energy. I’m even willing to pay a higher energy bill if that will encourage more green energy production.

But the drive for more energy production doesn’t give ministers a licence to make sloppy mistakes. And it’s pretty clear that the last Energy Secretary, one Ed Miliband, made just such a sloppy mistake back in 2009/10.

The problem Miliband faced was how to transport the electricity created by new wind farms to the national grid. Expensive new infrastructure was needed to achieve this – especially from offshore wind farms.

So what was Miliband’s solution?

Offer a very generous package to potential suppliers, so that plenty of businesses would want to build the infrastructure.

So under Miliband’s plan, transmission companies were granted 20-year licences where revenue would be guaranteed, rising in line with retail price inflation. If the companies failed to fulfil their obligations, the largest possible fine would be 10% of their income.

These licence deals have now been investigated by the highly respected House of Commons Public Accounts Committee (PAC). And the MPs on that committee aren’t happy. They say that the licences awarded so far “appear heavily skewed towards attracting investors rather than securing a good deal for consumers".

It’s estimated that the transmission companies will receive an annual return of 10% to 11% on their investments, yet they’re taking minimal risk. These easy profits will be paid for by consumers like you and me, and we have Ed Miliband to thank.

Granted, the current government could have tried to change the terms on offer when it came to power, but we shouldn’t forget under whose watch this system was created.

What can you do?

Sadly, there’s not much we can do to fight back on this, except make sure that we’re paying the lowest energy bill possible. So it’s essential that we compare energy prices once a year and switch to the best deal every time.

If you haven’t already done a comparison for this winter, my message is: better late than never. Get cracking now and you could still save money if the bad weather persists through late February and into March. What have you got to lose?

More on energy:

Pensioner energy bill double in seven years

The cheapest gas and electricity energy tariffs

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Comments (12)

  • easygoing
    Love rating 173
    easygoing said

    to Ed and r. I found your relies interesting and some I agree with and some not. Thank you for your reasoned and well argued replies. I appreciate them. I still think there is too much democracy though, we need less but of a higher quality. Too many consultations instead of getting on with the job. We elect our representatives to to work for us but don't let them get on with it.

    I also agree that the EU is a basically sound concept but it was allowed to get out of hand. Our late entry didn't help and feebleness of our politicians allowed it to become this monolith. Unfortunately trying to undo the mess would be a 'putting the genie back in the bottle exercise'.

    Report on 19 January 2013  |  Love thisLove  0 loves
  • electricblue
    Love rating 785
    electricblue said

    Wind turbines pay off their construction and infrastructure carbon costs tenfold over their lifetime and foreign energy companies DO NOT charge lower energy costs in their native countries so either we're all screwed or we're all in it together - pick an opinion.

    Report on 13 April 2013  |  Love thisLove  0 loves

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