THE average electricity bill we pay is £531. Gas averages £811. The wholesale price of gas is 67 per cent of a household bill.
The wholesale price is how much an energy company pays to buy gas. Another 16 per cent, £130, is the cost of getting gas to the house. Environmental charges are £49 on a gas bill and £58 on the electricity. So, these green levies are a small part of the larger bills we are all paying to keep the lights and the heating on.
But they are central to the politics of energy. As bills rocket, politicians have reacted. Ed Miliband announced a price freeze as the policy of an incoming Labour government. In the December Budget statement, the UK government will announce a cut in energy prices. It will do this by taking some environmental costs off the household bill. That will satisfy the Tories, who want to outflank Labour, and the Lib Dems, who want to retain their environmental commitments.
The energy companies are in the public firing line as bills rise by three times the rate of inflation. Their defence is that the energy companies obligation, or ECO, adds from £40 to £60 on to household bills. SSE described this levy as morally wrong. That is puzzling, given it helps financially disadvantaged families cut their energy bills. ECO will go and bills will fall as the levy is moved to general taxation. The energy companies will still have to explain increases in bills. That is not necessarily good news for them. Ovo Energy, a small power company, claims it buys wholesale gas for 7 per cent less than the 2012 price. If so, the public will ask, how come energy bills are rising by 10 per cent? Ofgem, the energy regulator, states that wholesale prices have risen by £10 since last year.
A House of Commons committee is pushing for real competition. No-one is proposing nationalisation of the industry. So, regulation is the key in a market dominated by six main players. Making it easier for customers to switch energy provider only goes so far. EON, one of the “big six”, wants a full competition inquiry to answer the charges of industry profiteering. All this will pose a larger test for politicians. The UK and Scottish governments are on the same page here. The SNP pledged to reduce bills after the Miliband initiative. Its proposal is the one the UK government is about to take.
So, how will governments react to energy bills that still rise? The SNP can hardly argue that independence will help. It wants to keep a GB electricity market and state Scotland’s renewable power will be exported to England. There has been no mention of nationalising energy companies or a Scotland-only electricity market. The Scottish Government has nationalised Prestwick Airport. But the cost of taking energy companies into public ownership would be prohibitive.
Energy prices are going to be an issue every year. So expect promise galore before next September’s referendum. Keeping them is a lot more difficult.
• Tavish Scott is the Liberal Democrat MSP for Shetland