Question
To ask the Secretary of State for Energy and Climate Change pursuant to his statement of 2 December 2013, Official Report, column 627, on energy bills, what the evidential basis is for the statement that (a) rising wholesale energy costs and (b) investment in energy infrastructure are the main driver of energy price rises.
Answer
Wholesales energy costs (excluding carbon costs) and network costs are the two largest components of energy bills, estimated to be 47% and 20% respectively in DECC's March 2013 report "Estimated impacts of energy and climate change policies on energy prices and bills":
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/172923/130326_-_Price_and_Bill_Impacts_Report_Final.pdf
Over the 12 months before delivery, the gas Winter 2013 contract was 4% higher on average than the gas Winter 2012 contract, and the electricity Winter 2013 contract was 7% higher than the Winter 2012 contract. However, it should be noted that energy suppliers buy energy over a number of different contracts gradually over time and each company's strategy for doing this is different. Suppliers' hedging strategies are commercially sensitive.
Investment in GB's electricity networks is needed to replace ageing assets and to accommodate the changing nature of generation. This vital investment to “keep the lights on” forms the majority of the network charge element on electricity bills. Evidence for this comes from the regulatory price controls set by Ofgem, which provide funding for electricity network company activities.