Days of Cheap Energy Over for UK

Days of Cheap Energy Over for UK

Aug 23 - Sunday Business; London (UK)

ELECTRICITY price rises do not arouse passions in the same way as petrol prices rises, but that may change. After the Netherlands, UK consumers pay Europe's highest prices at petrol pumps, while a combination of privatisation and cheap North Sea gas have long given them more or less Europe's lowest prices for gas and electricity. That era is coming to an end.

This week's second annual rise in gas and power charges from EDF Energy, making its power 10.5% more expensive than last year, and its gas 8.1% more expensive, may be a sign that the UK's energy advantage is on the wane.

No doubt UK suppliers Centrica, E.on, RWE, Scottish & Southern, Scottish Power, and EDF - whose prices have already gone up between 3% and 9% - will follow with a second rise this year. It's hard to blame them given that since March the cost of wholesale gas has risen 25% and wholesale electricity 19%. But many expect prices to continue to edge up as much as 30% next year, with more rises in the future.

The immediate cause is a global rise in oil and coal prices that has pushed up the price of gas and the power generated from it. But underlying this, it is clear that the UK's competitive energy advantage is being eroded as it becomes a gas importer, as competition in the liberalised market lessens, and the target of regulation veers away from price reductions.

The UK could become a net importer of gas as early as next year. If there's a harsh winter before 2007, there's a risk of shortage, which will drive up forward prices.

The Pounds 6.7bn (E9.9bn, $12.4bn) cost of the new pipeline and liquified natural gas terminals required to keep up with demand until 2010 will mean higher prices in the long term.

The combination of the reductions in carbon emissions the UK government has imposed on the electricity industry up until 2008 and the price impact of the Renewables Obligation, which requires energy retailers to source an increasing proportion of their electricity from renewables, will more than cancel out the benefits consumers have received from greater competition.

At the same time, competition is on the wane. When the UK electricity market was liberalised there were 23 companies offering consumers gas and electricity. Now only six significant players remain

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