MSE News: Guest Comment - Why are energy prices increasing?

edited 30 November -1 at 1:00AM in Energy
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  • magyarmagyar Forumite
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    I think the issue here is that BG has increased, or will increase, its prices on the basis that the wholesale price of oil and gas has increased. Wind, wave and nuclear (green) energy does not depend on the wholesale price of oil or gas.

    If anyone is "fudging", in our view, its BG.

    There is no fudge.

    This is quite simple. A small wind farm gets built: they sign an agreement with e.g. Centrica that for say 15 years they will buy all the power from that wind farm at whatever is the prevailing market rate at the time.

    The market rate is predominantly set by gas price, hence if gas prices go up, so does the cost of green energy.
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  • ConsumeristConsumerist Forumite
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    magyar wrote: »
    This is quite simple. A small wind farm gets built: they sign an agreement with e.g. Centrica that for say 15 years they will buy all the power from that wind farm at whatever is the prevailing market rate at the time. The market rate is predominantly set by gas price, hence if gas prices go up, so does the cost of green energy.
    So the green tariffs are a confidence trick being perpetrated by the energy companies. No fudge?
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • magyarmagyar Forumite
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    So the green tariffs are a confidence trick being perpetrated by the energy companies. No fudge?

    You're conflating two issues. The fact that green energy prices increase with gas prices has been explained above.

    The other point is that green energy tariffs are charged at a premium to standard tariffs. This I *do* believe is a bit of a con because the reality is that green energy costs the utility exactly the same as brown energy.
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  • ConsumeristConsumerist Forumite
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    magyar wrote: »
    The other point is that green energy tariffs are charged at a premium to standard tariffs. This I *do* believe is a bit of a con because the reality is that green energy costs the utility exactly the same as brown energy.
    On that basis, I would say it is a total con and this particular issue is worthy of a wider public airing as such.
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • magyarmagyar Forumite
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    On that basis, I would say it is a total con and this particular issue is worthy of a wider public airing as such.

    As I mentioned above, there are strict guidelines from Ofgem about what can and can't be called 'green'. So this is perfectly well known in the public arena, it's just that the public aren't interested in Energy matters.
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  • ConsumeristConsumerist Forumite
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    magyar wrote: »
    As I mentioned above, there are strict guidelines from Ofgem about what can and can't be called 'green'. So this is perfectly well known in the public arena, it's just that the public aren't interested in Energy matters.
    I don't think it matters too much what is called "green", what is of interest, to me anyway, is that consumers paying green tariffs appear to be paying extra to get absolutely nothing in return while the energy companies pocket the extra for their shareholders.

    I don't understand why anyone would even dream of paying green tariffs. My understanding is that they think they are making some contribution to cutting carbon footprints but, in fact, they seem to be doing absolutely nothing of the sort.

    If everybody stopped paying green tariffs, what difference would it make except to reduce the energy companies profits?
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • magyarmagyar Forumite
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    Your last point is the key point, and why it does matter what's called 'green'. If you subscribe to green energy, you DO effectively get green energy. However there's an obligation on suppliers to buy a certain percentage of green energy anyway. So Ofgem said you have to provide something more, e.g. pay money into a renewables fund. So this is what would be lost.

    The point is also more subtle than you think. The suppliers will claim they charge the same for green as brown, e.g. npower's Juice tariff. However as we all know most suppliers offer various discounted tariffs in addition to their standard tariff. So effectively people are paying more.
    Says James, in my opinion, there's nothing in this world
    Beats a '52 Vincent and a red headed girl
  • davidgmmafandavidgmmafan Forumite
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    "However, BG guarantee to source the amount of energy used from renewable sources."

    "This I *do* believe is a bit of a con because the reality is that green energy costs the utility exactly the same as brown energy."

    I'm confused, if wind or solar have a guaranteed rate which is more than suppliers are charging thier customers I don't see how the cost is the same. I understand the companies are obligated to purchase a certain amount of green energy but this money has to come from somewhere so surely customers are paying in some way???
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  • magyarmagyar Forumite
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    "However, BG guarantee to source the amount of energy used from renewable sources."

    "This I *do* believe is a bit of a con because the reality is that green energy costs the utility exactly the same as brown energy."

    I'm confused, if wind or solar have a guaranteed rate which is more than suppliers are charging thier customers I don't see how the cost is the same. I understand the companies are obligated to purchase a certain amount of green energy but this money has to come from somewhere so surely customers are paying in some way???

    It is indeed a confusing situation, because it's so complex. Firstly only some small-scale solar installations have any sort of guaranteed rate. Larger scale wind farms don't get the 'feed-in tariff', they get the market price of the 'brown' energy, plus the value of a renewables obligation certificate.

    To sell power in the UK you need to be a registered, licenced supplier. This is not practical for small generators and so they have to sell their power to licenced suppliers such as 'the big six'.

    So, whether you're a wind farm or a house with a solar panel, you sell your electricity to a utility.

    The utility will charge its customers for both power and also a levy (regulated by the government) for both the renewables obligation certificates and the feed-in tariff. So effectively the feed-in tariff and the RO costs them nothing.

    Hence effectively green electricity costs the same to the utility as brown electricity. What BG are saying is that they guarantee that whatever they sell as green is actually matched by the amount that they actually source.

    It's also not slightly misleading to say that utilities are obliged to purchase a certain amount of electricity from green sources. That's not quite true: they have the option to pay a penalty instead (given that the money for this has been charged to the customers already, this is also cost neutral to them).
    Says James, in my opinion, there's nothing in this world
    Beats a '52 Vincent and a red headed girl
  • bengasmanbengasman Forumite
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    magyar wrote: »
    It's also not slightly misleading to say that utilities are obliged to purchase a certain amount of electricity from green sources. That's not quite true: they have the option to pay a penalty instead (given that the money for this has been charged to the customers already, this is also cost neutral to them).

    If you distort the facts that way, you could say it is quite alright to kill someone, as long as you realise that you go to gaol if they catch you.
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