UK Prime Minister David Cameron recently announced that he would pass a law forcing energy companies to offer their customers the lowest tariffs available, but this will not necessarily translate into cheaper energy bills, EU energy experts warn.
While Cameron might in theory be able to keep his promise of making sure energy companies offer the lowest tariffs, this will not necessarily mean that consumer bills will be lower.
This is mainly due to rising energy prices. The Paris-based International Energy Agency last year declared that the age of cheap fuel was over.
Paying more for less?
Moreover, in Europe, energy bills may increase because of various policy decisions taken at EU level, to which the UK government has signed up to.
The EU’s Energy Efficiency Directive, which was recently adopted by member states, requires energy companies to deliver 1.5% more energy savings every year. This is the area with the most detail in the directive and the one which is likely to bring the most of the 20% energy savings that the EU is hoping for by 2020.
As utilities will have to achieve additional savings every year, they will start implementing energy efficiency measures for their customers – measures which will see electricity prices go down in the long-run, but which require initial upfront costs.
But energy companies fear they might end up being squeezed between the governments’ ambition to deliver energy savings and the promise to consumers to keep energy prices low.
“The concern is that energy companies will end up paying for everything ,” said Nicola Rega from trade group Eurelectric, adding that energy companies were an easy target for public opinion.
Bogdan Atanasiu, of the Buildings Performance Institute Europe, said there are two ways governments can do this. “You either take money from the public budget – to which not every citizen really contributes – or you raise the energy bills, ensuring everyone will pay.”
It is not yet clear who will finance this 'fair' solution and the most probable scenario will see a so-called 'socialisation of the cost' between consumers, even if not all can afford to insulate their homes or switch to more efficient boilers.
"We should not forget that many consumers – especially low-income families – have already reduced their consumption as much as possible but are still hit hard by price increases," said Johannes Klein, of the BEUC consumer group.
Energy efficiency, possible catalyst
In implementing the changes brought by the new efficiency directive, there has been a broad accord that policies must encourage consumers to use less energy. This would require political commitment and public awareness campaigns.
But while policymakers, energy companies and NGOs concur on the need to communicate, politicians are reluctant to handle what has become a hot potato.
“What most politicians tend to do,” Rega said, “is that instead of motivating citizens in taking action, they shift the attention somewhere else, saying: energy prices go up because of energy companies.”
“They forget all the added costs that pile up in the energy bill, such as taxes, incentive schemes, obligation schemes, network charges, fuel prices,” Rega said.
For example, it is likely that new taxes will be needed to fund smart metering systems and grid improvements or that cuts elsewhere in public budgets will be needed to fund them. Ultimately the consumer – private and corporate – will pay.
One alternative is using energy more judiciously.
"We need to look at it the other way round: energy efficiency measures tend to push down energy prices," said Brook Riley of Friends of the Earth.