EU exposes UK's steeply rising energy prices

by Cliff D'Arcy on 05 June 2012  |  12 comments
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An EU investigation shows energy prices rising faster in the UK than on the Continent.

The past decade has seen the cost of domestic gas and electricity soar throughout the UK. This is partly due to rising prices for crude oil, coal and natural gas, but energy companies' profits have soared, too. 

Up, up and away 

Like me, you may have wondered whether these ever-rising energy prices are peculiar to the UK or are part of a wider phenomenon. Today, thanks to Eurostat --- the statistical office of the European Union (EU) -- we can find out what's happened to energy prices across the EU. 

According to Eurostat's latest investigation, household electricity prices in the 27-nation European Union climbed by 6.3% between the second half of 2010 and the second half of 2011. Household gas prices soared by 12.6% over this same 12-month period. 

A shocking increase 

Then again, changes to energy prices varied widely from one EU state to another. Here's the table of electricity price hikes, sorted from steepest to smallest rise: 

Source: Eurostat, 25 May 2012

During this 12-month period, electricity prices rose most steeply in Latvia (27.5%), Cyprus (19.4%), Portugal (12.9%), Spain (12.8%) and the UK (12.1%). In these five countries, electricity prices rose at two to four times the EU average rate of 6.3%, with the UK fifth-highest on this list. 

At the other end of this scale, prices didn't rise in Finland and Malta, while they fell by almost 5% in Norway and Luxembourg. 

In summary, we Brits faced some of Europe's steepest rises in electricity tariffs during these 12 months. 

The UK's gas explosion 

Now let's find out how gas prices have risen from the second half of 2010 to the second half of 2011. Here's the table, sorted from steepest to smallest rise: 

Source: Eurostat, 25 May 2012. Cyprus, Finland, Greece and Malta are excluded from this survey, as they have no significant consumer market for gas. 

Oh dear, this time the UK is at the very top of this list, thanks to gas prices exploding by 27.2% in 12 months. Following behind us are Luxembourg (22.4%), Belgium (21%), Austria and Bosnia & Herzegovina (both 19.8%) and Lithuania (19.1%). 

At the opposite end of the table, prices didn't rise at all in Denmark and Spain, while they dropped by a tiny 0.1% in Romania. 

In summary, we Brits endured Europe's steepest rises in gas tariffs between the second halves of 2010 and 2011. 

Are we being ripped off? 

Frankly, Eurostat's latest statistical survey leaves me scratching my head in bewilderment. 

To me, it seems odd that the UK -- the world's seventh-largest economy, a free-market stronghold and a nation of 62 million people -- has seen such relatively steep rises in domestic energy prices between 2010 and 2011. 

Several possibilities immediately spring to mind: 

1. These figures are merely a snapshot in time, reflecting price changes over a single 12-month period. Hence, they may not be indicative of longer-term trends in relative energy prices across the EU.
2. Perhaps the UK experienced steeper price rises between 2010 and 2011 than other countries did because prices were unusually low here beforehand?
3. There is the possibility that different national tax and investment regimes have skewed these results, making them an unfair comparison.
4. There may be fundamental differences in the sourcing, supply and distribution of energy here in the UK.
5. British energy suppliers are ripping off the UK's 26 million households.

Being something of a sceptic, I would tend to veer towards the fifth of these bullet points, but I dug deeper into Eurostat's numbers for more clues. 

I found a Purchasing Power Standard (PPS) comparison, which uses an artificial common reference currency to eliminate price differences between countries. In effect, as one PPS unit has the same buying power in all countries, this removes currency distortions. 

Here's how electricity prices compare across the EU on a PPS basis: 

* Average price per 100 kWh in the second half of 2011 

This PPS comparison shows that electricity prices in the UK are around a seventh (14%) lower than the average for the European Union as a whole. 

Here's Eurostat's PPS comparison for gas prices: 

* Average price per 100 kWh in the second half of 2011. Cyprus, Finland, Greece and Malta are excluded from this survey, as they have no significant consumer market for gas. 

This PPS comparison shows that gas prices in the UK are almost a fifth (19%) lower than the European Union average. In fact, UK gas prices are the second-lowest in the EU. 

In summary, I suspect that this startling news may come as something of a pleasant surprise to Brits facing their highest energy bills in history!

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