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Charles Clover: Huffing Huhne Spurns Best Way To Cut Gas Bills

The shale gas revolution is a way of keeping both consumers and environmentalists happy. We should not call this manna poison.

[…] The row about rising fuel bills isn’t going to go away. There was more bad news this month when a report by Professor John Hills blamed 2,700 winter deaths on fuel poverty, a far larger proportion than die from it in really cold countries such as Sweden. And more than die annually on Britain’s roads.

As Ofgem found in March, competition is being stifled by overcomplicated tariffs, poor behaviour by energy suppliers and a lack of transparency in billing. But that’s only the half of it: research by Which? has found that there are huge problems of fairness, which will only get worse as bills rise.

Consumers who use less energy — because they are poor or because they have lagged their lofts — pay more proportionally.

If you pay by direct debit, are billed online, switch a lot (all things that favour the better-off) and burn more energy, you pay less. The way tariffs work is socially and environmentally wrong. The poor pay more than the rich, and the polluter does not suffer.

How a regulator whose job is to look after the consumer allowed this structure to evolve takes some explaining. You might also ask how it allowed the merger of the distribution and generating companies created at privatisation into the present big six oligarchy. Giving Ofgem more teeth, as Huhne wants to do, underestimates the problem. He needs to sack Alistair Buchanan, its £210,000-a-year chief executive, and create a body that actually champions the consumer.

Yet we must keep a sense of proportion in the autumnal gloom. Britain’s liberalised energy market still charges some of the lowest prices in Europe. Gas prices here are not actually that high — the oil price equivalent of $60 (£38) a barrel. On the Continent they are $80-$100. The price rose because of demand from Asia, which is continuing to grow just as Europe looks likely to fall back into recession. Britain now has the choice of falling further behind in competitiveness or persuading Europe to take a new direction based on the discovery of secure supplies of gas.

For the truth is that the thing most likely to put up consumers’ bills over the next decade is Europe’s target of 20% of all energy consumption coming from renewables by 2020. This is calculated to add about 30% to customers’ bills. Once, it looked sensible to hedge our bets against ever-spiralling gas prices with clean coal, offshore wind and nuclear power at the equivalent of $130-$180 a barrel. That was before the shale gas revolution, which has cut gas prices in America to the equivalent of $22 a barrel.

The discovery of shale gas in Britain and Poland — and new discoveries in the northern North Sea — means there could soon be a credible, alternative way of meeting Britain’s 2050 environmental targets at lower cost, by moving from coal to gas. Eventually, the shale gas revolution will hit China, displacing coal, which could be the single best thing for the planet.

Yet last week Huhne and David Cameron ploughed on as if the world had not changed. They stood by the EU renewables target, which will drastically reduce our competitiveness against the gas-powered US and eat into profits of energy-intensive industries. In gas lies a way of keeping both consumers and environmentalists happy. Britain should avoid the rhetoric of some politicians in Europe, who are looking at the new manna from heaven and calling it poison.

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