Discussing Energy Economics on the Internet

Centrica Takes The Plunge

Posted in UK by Cheryl Morgan on the July 8th, 2011

There are slow news days, and fast news days. If you want to make a big splash with a press release, send it out on a day that no one has anything to talk about except the latest UFO sightings. If, on the other hand, you want to bury bad news, announce it on a day when everyone is distracted with the biggest story of the decade.

That’s what Centrica has done in the UK today. The whole of the country is gripped with fascination over the unfolding story of the News of the World phone hacking story, which has already cost the venerable newspaper its life (and all of its staff their jobs), and threatens to do major damage to both Prime Minister David Cameron, and media tycoon Rupert Murdoch. What better time could there be to announce that you are raising retail energy prices by 16% for electricity and 18% for gas?

Of course not every journalist in the UK is asleep at the wheel. The BBC has a lengthy report on the issue. This is full of the usual back-and-fore in which Centrica blames world wholesale prices for its problems and consumer organizations quote their own statistics, either about historical prices or Centrica profits, in order to claim that the price rise is nothing but an exercise in gouging.

Sky News, however, takes a very different tack. It quotes Ann Robinson of the consumer website as saying, “the days of cheap energy are over and it’s time that we all started to understand what this means for our bills and how we use energy.”

Why might this be? Well, The Economist recently held an energy summit in London. The keynote opening address was made by Sam Laidlaw, CEO of Centrica. Here’s part of what he had to say:

We are rapidly approaching a tipping point in the energy story of this country and there is a risk that society is not being realistic about the path ahead. (…) Over this next decade three forces are coming together – our growing dependence on increasingly volatile world energy markets; our commitment to make serious cuts in carbon emissions; and our obligation as a society to ensure that energy remains affordable at a time of huge pressure on household incomes.

That issue, which is by no means unique to the UK, is explored in great detail in an article by Hugh Sharman at European Energy Review. Sharman lays into government energy industry forecasters, led by the International Energy Agency, which he describes as being “consistently optimistic — and serially wrong”.

Of course Sharman has his own axe to grind. He has made something of a career out of criticizing UK energy policy through his blog, DimWatt, but there is little doubt that the UK is desperately in need of new investment in generating capacity, and transmission infrastructure as well if it wants access to the promised green energy bonanza from Scotland. It is unlikely to get that if consumers are not willing to pay more for power.

So Centrica has taken the plunge. It wasn’t the first major retailer to do so. Scottish Power put prices up by around 10% last week. But it has a much higher profile and has implemented much bigger price rises. The company is doubtless hoping that the rest of the industry follows suit.

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