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, according to uSwitch.com.

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?

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