FT article - budget levy/eco cut won't stop rising electricity costs

Scot_39

Network costs predicted to continue to drive electricity bills up over the medium term, despite next Apr changes.

https://www.ft.com/content/4a161630-a32b-4427-bd66-b6cabb3c6744

Yet more evidence as desnz officials have already admitted to the PAC - network costs are wiping out any notional wholesale rate savings.

With an even higher £80bn network costs apparently awaiting Ofgem approval.  In 2024 the 3 TNO range was reportedly £55 bn min (est before 95% by 2030 target)

wakeupalarm

Wholesale costs have been falling over the last year, and gas wholesale costs are now at the lowest point over the last year.

If household prices are still going to go up despite the budget reduction of "£150 off energy bills", what happens to household energy bills once these wholesale costs start rising?

With large numbers already in debt, and these costs passed on to other customers, this is not looking good for the future.

Scot_39

wakeupalarm said:

Wholesale costs have been falling over the last year, and gas wholesale costs are now at the lowest point over the last year.

If household prices are still going to go up despite the budget reduction of "£150 off energy bills", what happens to household energy bills once these wholesale costs start rising?

With large numbers already in debt, and these costs passed on to other customers, this is not looking good for the future.

Yes - wholesale gas is dropping and now reflected in the Jan cap - which for duel fuel has only gone by 0.2% - despite the electricity unit rate up 5.1% and both standing charges going up.

Whereas the all electric - profile class 2 cap - is up another 4.3% - so £85 in total - 7.4% (£34 Oct, £51 Jan) - so 3%+4.3% in 3 months - versus 2%+0.2% for duel fuel.  7.4% rise just in tiem for some of the worst months of winter - and some of the highest monthly bills.

Anyone would think Miliband and the DESNZ were blind to the 9m homes in the UK under the wider definition of fuel poverty. I suspect a dispropotionate fraction of which will be those living in poor standard accomodation and reliant on conventional electric heating.

The estimates for net zero electric network costs increasing over the next five years have been in the £100-150 range for the average domestic consumer - in the last few years.

The debt burden on the rest of us was estimated at £50 - and then hidden in the Ofgem cap breakdown - another sign the additional allowance £28 - up from £11 when introduced during Covid 4 years ago - is far from the promised temporary meaasure. With Ofgem debt up another near 10% in last quarterly figures I checked from the c£4.1bn then - and plans to add another was it £5-8 - to write off even more of that debt - already announced.

As to the £108 new predictions - that also actually includes gas - so is if anything erring on the lower side for electric - but ignores the costs already added to our bills in last year or two - and before - not only in recent Oct and the coming Jan caps - but for months and years before.

Someone has to pay the bills for £8bn balancing, £3bn grid thermal constraint - forecast for 2030 by NESO / and the previous NG ESO in 2024 and £10s bn pa TNOs (and likely even more for the DNOs on electricity grid / local distribution networks - local transformers - even in the limit connections to domestic premises with low amp feeds - like 60A or below - to build headroom for 24m ASHP and EVs).  

And then there is the whole issue - of over capacity in UK generation - on a breezy bright summer day - there is no demand for most of the c50GW of renewables for most daylight hours - theoretical wind capacity, solar commercial and domestic - against a demand of around half that level - even worse when subtract out nuclear and it's guaranteed purchase model - and what that might mean for CfD pricing and demand based curtailment payments in coming years.

With GW more capacity still to be added as licensed in recent auction rounds. A sensible energy policy would at least be building storage requirements into contracts for renewables - not planning to sell GW more of licenses without it - but that of course would make the price even less competitive - even more likely to lead to the growing public rejection of current net zero plans (as the two leading parties in recent polls - Reform and Conservatives - now do to different degrees to reflect the growing rejection).

And as of last figures - before those wholesale gas drops in recent months - wind renewable CfD's were adding £27 to duel fuel cap / bills to the wholesale cost line. So 1p/kWh+vat+overheads.  

(But that CfD price mix is also dynamic - but wind CfD prices - particularly offshore - have long since passed their ar4/2022 trough - with last years ar6 prices - for delivery now and next 2-3 years - exceeding average gas generation / MWh for the whole of 2024 - and the current ar7 cap set 10%+ - at least for offshore - set higher still.).

Bottom line - if gas generation follows gas wholesale rates - and prices fall faster than CfD mix costs - the wholesale CfD offset on our bills goes back up again - the £27 was lower than previous years Ofgem level - by c25-30% iirc.  If CfDs like AR4 lows drag the average down faster - we might see at least a temporary reduction in wholesale cost implications.

So as it stands - when Ofgem last put a figure in their quarterly cap letter - more expensive to buy wholesale when can use, more expensive than fossil due to billions in balancing costs (we need every GW of fossil on standby in practice when wind hits sub 10% - sometimes 5% lows - often reliant on importing over interconnects having closed out GW of coal prematurely for instance) - and demand and grid curtailment when its available but we cannot deliver - and more expensive to deliver as built without matching grid capacity - often remotely - so needs new pylons, HVDC links over 100s of miles etc etc.

The nightmare reality - for those silly enough to promise £300 savings or believe them - all these extra costs predicted by folk inside the industry for years now becoming very transparent to domestic and industrial users alike. 

Greenwashed out of generation of planning and govt policy - by those who put emissions before costs - before our jobs - from shops and pubs to big users like steel, aluminium, potteries etc - and the millions - now upto 9m homes of UK already in the broader measure of energy poverty.

UK green - arguably political vanity - like the current 95% by 2030 target - some might say - a race to be first - against the bills of our dwindling power price sensitive businesses / industry and our domestic consumers.

(Remember our international commitment under Paris accord like many other nations is net zero by 2050  so this 95% by 2030 staging post on electricity generation - is now many years ahead of others - e.g. compared to our competition like Germany - who for instance have had a standing plan to end coal generation in 2038 - 14 years after we shut our last plant. Yet we still use Drax / wood - a dirtier fuel source in terms of emissions/MWh - and that with imported wood - not use our own coal reserves.)

Yes the £150 cut means the bills will go down relative to how high they might have been.

And it might even produce a drop in inflation - but less so any improvement in one key metric - disposable income.

As that budget headline announcement isn't saving households a penny on average - and likely to cost richer ones - those paying higher levels and rates of taxes - far more.

The levy savings are only temporary - the 75% support ends in 2029 - and that 75% is on taxpayers - beyond ?.  And again AFAIK the long term plan will replace the ECO scheme long term by the tax funded Warm Homes plan.  Which this site estimates at £13.2bn by 2030.

https://eliteenergy.co.uk/warm-homes-plan-eco-scheme-ending-2026/

So in reality taxpayers / bill payers still face the same - well for warm homes rather than ECO - potentially even higher costs - if the above expansion of scope actually take place.

Again more smoke and mirrors - they havent actually saved many anything - just shuffled from bills - to offset the reality of growing net zero costs despite the illusory £300 savings promised - to at least in theory - and its no bad thing in some respects - more progressive taxation.

And even though I stand to lose as a low energy users - and a taxpayer - I feel its a fairer way to address the issues.

Giving 6m homes £150 in WHD to avoid uplifting benefits - when govts have themselves driven bills far higher - just the policy line in the Ofgem cap breakdown - has increased the TDCV bills by £79 / 50% in less than 2 years - is just perverse example of the UK govts inability to stand back and look at the big picture - and then rework - rather than tinker with a failing system - in terms of energy costs - if not the green net zero mantra driving it - energy strategy.