How innovation can help us keep lights on for future generations

Published on Thursday 3 July 2008 22:11

NOBODY likes the fact life is getting more expensive. Wholesale energy prices are rocketing because of massive growth in demand for oil, gas and coal from countries such as China and India.

The simple fact is that global energy demand growth last year was above average for the fifth year in a row, and we are feeling the impact here in Britain just as other countries are around the world.

Energy suppliers are increasingly being exposed to these global pressures, and dwindling North Sea reserves have meant that energy companies have to buy more gas from European wholesale markets, where prices are higher.

European gas prices are also linked to oil prices, and nobody had foreseen how rapidly and how high the oil price would have gone up in the past few months.

The untold story is that competition between energy suppliers is actually protecting consumers from the worst excesses of the volatile wholesale gas market, where prices are higher. Between 2004 and 2007, wholesale gas prices rose by 170 per cent, but household bills increased by an average of 95 per cent during this period.

It is because of effective competition that UK consumers have a huge variety of different deals available at varying prices, as well as the ability to switch supplier, tariff or method of payment.

Some 100,000 people in Britain exercise their choice to switch supplier every week. This makes the energy industry more dynamic than broadband, home insurance, credit card, mobile phone and mortgage companies.

All six major energy suppliers, and a number of smaller firms, offer different tariff and payment plans, with about 50 different options available to a typical household.

Energy suppliers are also doing far more than any other industry to help their most vulnerable consumers. They recently announced an extra 225 million for the period 2008-11 in voluntary contributions to help those most in need. This is in addition to the 150 million already allocated over the same period and their 1.4 billion energy-efficiency commitment to help customers most at risk over the next three years, as part of their obligation under the Carbon Emissions Reduction Target.

These services include free insulation, grants and trust funds to help those who are struggling to pay their fuel bills.

There is no other industry that spends so much money to reduce demand for its own product and provide more direct help to vulnerable customers. This is why the energy industry must be considered as part of the solution to tackling issues of fuel poverty. It is an issue that the energy industry takes seriously and one it cannot tackle alone.

If we are to maintain our position as a world leader in energy markets, suppliers need to keep innovating and investing. That means bringing out new products and creating consumer demand for microgeneration, smart meters and hi-tech appliances.

The energy companies are investing massively in new domestic technologies to improve billing and customer services. The most important change will be made with the introduction of smart metering – a technology backed by both industry and consumer groups. Smart meters will revolutionise consumers' relationships with their energy supplier by offering accurate billing and real-time information on the cost of energy used.

If we are serious about keeping the lights on for future generations, then companies need to be given the freedom and opportunity to innovate and invest for the long term.

The introduction of smart meters, the growth in renewables and the provision of the right energy mix require us all to face up to difficult choices.

&#149 The Energy Retail Association represents the UK's six major residential energy suppliers – British Gas, EDF Energy, Npower, E.ON, ScottishPower and Scottish and Southern Energy.