October 2003

Significant Increases In Energy Costs

On October 14th 2003 Ofgem (the energy regulator) issued a press release stating that they did not anticipate power cuts this winter. This is good news for all of us as we are due for an unseasonably cold winter this year. However, what is not so good is the rising costs of electricity and gas.

There are various reasons behind the huge increases in prices over the last 12 months. Over the last four years, prices for electricity have fallen as a result of increased competition, which has also resulted in excess capacity. The effects of over generation and low electricity prices caused some generators to reduce capacity by mothballing production plant. This reduction in capacity is now feeding through to the market place. The reduction in available generation plants means prices for Winter 2003/04 will increase.

Wholesale gas prices in the UK are linked to the price of oil and gas in Europe. There is a lot less competition in the European energy markets, which means prices have tended to be higher there. Because Britain is part of the wider European energy market, it will continue to be affected by non-competitive European energy prices until the European markets are deregulated.

Average energy prices over the last five years:

Over the past five years (1997 to 2002) average industrial electricity prices have fallen by 20 per cent (30 per cent in real terms) and by 6 per cent (9 per cent in real terms) in the last year.
Over the past five years (1997 to 2002) average industrial gas prices have increased by 47 per cent (29 per cent in real terms) with a decrease of 8 per cent (11 per cent in real terms) over the last year.

With energy markets the way they are at the moment, we expect energy price increases of around 30% for many of our clients. Increasing energy prices means the importance of energy efficiency is even greater. If you would like information on how to reduce energy consumption and become more energy efficient, contact Richard Whitaker, Projects Director, on 024 7627 9000.