Who is really to blame for high UK energy prices?

In the last 5 months we've all been waging war against the utility companies as our prices have crept up and their profit margins have stayed nicely intact, but who is really to blame for the increase in the cost of energy? Centrica owned British Gas have been a target lately, and energy minister Ed Davey has gotten behind the public in an open letter pleading regulators to take "radical" steps to repair the market. But some experts are calling on us to put the blame game on hold and look at the wider picture... 

 

gas importsDavey got stuck into SSE and British Gas after they announced unexpected profits in the wake of putting their prices up, and while this will no doubt win him a great deal of public support in the run up to a 2015 election, many are now accusing him of ignoring some of the fundamental issues in play. Experts have settled on our dependency on the expensive importing of natural gas as one of the main contributors to high household bills. It's not that Davey has been accused of being incorrect, just that his view, and the view of the general public, is a little too simplistic at present. RBC Captial Markets urged Davey and Miliband - who recently blamed the Big Six and proposed an energy price freeze for 20 months as a solution - to take a look at Asia where a booming economy has led to more gas needing to be imported to support the continent.  Basically, that the UK needs to understand how a free market works and that we can expect prices to carry on creeping up at least in the short to medium term.  The argument here has more to do with international markets than the private sector putting a price tag on their supply, but let's take a look at the details... 

 

The UK has long since imported its gas.  Since the North Sea began to run dry in 2005 the UK has relied heavily on imported gas which has exposed consumers to the fluctuations of the international marketplace, according to one analyst. Wholesale gas prices have climbed by around 120% over the last 5 years, and when the financial crisis began back in 2007 energy companies were reluctant to invest the money they needed to in Liquified Natural Gas plants which has led to a 'tighter' market and higher prices.  Analysts warn that until these LNG plants are in circulation (something which could happen over the next 3 or 4 yeras) energy prices will remain high.  So, you're probably wondering, what about fracking? Doesn't this make our dash for gas a little more sensible? Well, no.  One of the leading forecasters at the International Energy Agency has warned against fracking, saying that it won't provide the answer to our energy problems and that it's a cheap and clumsy band aid to a problem which requires a more dawn out solution like, for example, nuclear. So where should our prioties lie as a nation? 

 

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