Who are the biggest winners and losers when energy companies reduce their prices, and what will this lead to in the near future?

(froy). Submitted on Fri, 3 Feb 2012

Periodic increases in the cost of electricity and gas in the UK have proven to be a source of consternation for many households and businesses in recent years, and many rejoiced when energy companies announced reductions in rates for 2012 - however, the issue is more complicated than companies simply charging what they wish for their supplies.



Gas and electricity prices are controlled by supply, and in the last few years supplies have been dwindling - a combination of depleted domestic reserves and increasing tax on foreign imports have forced energy companies to pay more for wholesale fuels and to pass this cost on to their customers in order to stay in business. Britain's highly competitive energy markets are a site of fierce price battles as companies attempt to offer the lowest rates possible, but long term reductions were not believed to be a feasible possibility.

This changed recently, when several suppliers announced reductions of up to five per cent on some tariffs, though for some suppliers this meant reductions to electricity costs only (some companies have offered reduced gas also). Some suppliers have already started charging at a lower rate, with others to follow in February and March. This is due to a drop in the price of wholesale gas and electricity that the energy industry has regrettably informed its customers cannot be expected to last.

Under the latest tariffs, average electricity and gas customers can expect to save between £20 and £40 per year. The news of price reductions, however temporary, was greeted warmly by some consumers, but not by all - especially as electricity prices in particular are not expected to return to what they were in 2009. Indeed, industry speakers have revealed that customers should not expect prices to drop any further in the future, due to the continuing rise in commodity prices.

The industry is also hoping to receive more government assistance to help keep the lights on, with energy regulator Ofgem estimating that investment of around £200 billion will be necessary to make energy more environmentally friendly and affordable for the average household. This is especially crucial if Britain is to achieve its goal of utilising 15 per cent renewable energy by 2020 to comply with European directives, which means more investment in solar power, wind energy and other sustainable sources to offset the nation's carbon footprint.

Although these renewable energy measures won't come cheap, they could spell a bright future for Britain's energy markets, reducing the industry's reliance on foreign exports and giving suppliers greater freedom to offer discounts and lower rates.

 

About the Author

Fiona Roy writes for a digital marketing agency. This article has been commissioned by a client of said agency. This article is not designed to promote, but should be considered professional content.

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