Skip to main content

Energy: Gas and Electricity Prices

Volume 705: debated on Tuesday 11 November 2008

asked Her Majesty’s Government:

Whether they will introduce measures following the report of the Organisation for Economic Co-operation and Development that gas and electricity prices in the United Kingdom have risen by 29.7 per cent in the past year, compared with increases of 14 per cent in France and 12.2 per cent in Germany.

My Lords, the Government fully appreciate the impacts of high energy prices, particularly on vulnerable people. Despite recent increases, UK domestic gas and electricity prices in January to June 2008 remained respectively the lowest and fifth lowest in Europe. UK prices rose by particularly sharp percentages this year, because retail prices fell here in 2007, unlike in other EU member states. The regulator Ofgem monitors the markets to ensure that wholesale price decreases pass through to consumers without unjustified delays.

My Lords, I thank the Minister for his Answer to my Question. It sounded amazingly plausible and I am not quite sure why we are all so worried, except that Consumer Focus, the Government’s own organisation under the noble Lord, Lord Whitty, who has been a Minister in his own Government, has declared how very worried it is about this. Given that we have dithered over gas storage and that one reason why we pay so much for our gas is because we have to buy it from France and Germany, which do not seem to have such high prices as we do, will the Minister kindly comment on the breaking news that Portland Gas has said today that it will not build its gas storage?

My Lords, on the general concern expressed by my noble friend Lord Whitty, when consumers, and indeed businesses, see a sharp increase in prices, they are of course concerned about it. The noble Baroness will know about the Ofgem review. Although that review identified a number of problems, particularly with pre-payment meters and the supply of electricity to customers who have not switched, overall it found that the market was still competitive. I cannot comment on the decision about gas storage, but I can say that we remain committed to ensuring that there are sufficient storage facilities in this country.

My Lords, would my noble friend be prepared to suggest to Ofgem that there is a case for a fresh look at the nature of the British energy market? In the past 10 years, we have been largely guided by the original authors of the regulation of energy, who were inspired by the now widely regarded as bankrupt Austrian school of economists, who took the view that we should eschew long-term contracts in favour of the short-term market—a course of action that was warmly applauded by those on the opposition Benches. The French and the Germans, who remained loyal to the long-term contracts, are now enjoying lower rates of increase than we are, and there is a case for us eschewing the right-wing nonsense of these half-baked economists of the past, who were applauded by the Conservatives in recent years, and considering the matter afresh.

My Lords, I will not comment on schools of economists. But I would say to my noble friend that, clearly, the UK consumer has benefited from the competitive market that this country has had over the past few years. I would also say to my noble friend, which he will know, that in our debate on the Energy Bill we discussed the role of Ofgem. As the result of a government amendment, in the light of discussion in your Lordships' House, we have placed renewed emphasis on Ofgem’s role and responsibility to work in the interests of the consumer now and in the future. It is very important to tell my noble friend that we think that that is significant.

My Lords, it is generally recognised that gas storage is a key issue in terms of the fluctuating prices of gas, as well as an energy security issue. In the UK we have some two weeks of gas storage capacity, whereas France and Germany have 100 days or more. What is the current gas storage target in terms of days or weeks and when is that target likely to be met?

My Lords, the noble Lord is right to raise the issue of gas storage and, because of the North Sea, we have had our own natural storage for a considerable number of years. My understanding is that our current storage capacity is around 4 per cent of current annual demand, which is 4 billion cubic metres. We are seeing around 1 billion cubic metres under construction and a proposed 14.5 billion by 2020-21.

My Lords, on the simple point of the prices that consumers have to pay—I join the Minister in welcoming Ofgem—although we have the power to fine considerably when flouting occurs in relation to price increases, that does not directly benefit consumers. They do not get any of that money. They do not get a refund on any overpayments that they may have made. What would the Minister suggest to amend the situation?

My Lords, one has to accept that there is inevitably a lag between the time when wholesale gas and electricity are bought and when the price of them goes through to consumers. It is important for that lag time to be as short as possible and for companies to be transparent. The general Ofgem conclusion is that there has been no undue delay in reductions likely to come through. Clearly, we cannot be complacent and we are entitled to ask the companies to be transparent.