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Tory Energy Policy: Will Prices Go Up Or Down?

Kate Palmer, The Daily Telegraph

This week’s Cabinet reshuffle has ended months of speculation over who will be governing our energy policy for the next five years.  In the new all-Conservative government, Amber Rudd has replaced Liberal Democrat Ed Davey as Energy Secretary.

The shake-up will affect how much every household spends on energy. Everything from energy tariffs, switching suppliers, the Green Deal and solar panel payouts to smart meters will, ultimately, be decided at ministerial level.

Here we detail what the new government has in store for your energy bills.

1. No price cap – but bills ‘should fall by 5pc’

Energy firms won’t now be forced to freeze their bills in 2017, and the election result also ruled out Labour plans to force firms to pass on wholesale price cuts to consumers.

Critics said the threat of a Labour price cap had artificially pushed up prices because energy firms had been reluctant to cut tariffs that they might not have been able to increase in the future.

Mark Todd, of EnergyHelpline, a switching service, said it was unclear whether energy firms had actually increased prices. But he said: “Suppliers have used this as an excuse to delay price reductions – if this is the case, let’s see some price cuts now.”

Wholesale gas prices have dropped by 31pc in the past three years while domestic gas prices have risen by 6pc. Wholesale electricity costs have dropped by 13pc since 2013, but tariffs are 5.3pc higher.

“Significant price cuts are possible, perhaps 5pc, which equates to £65 a year,” said Mr Todd.

It’s possible that the Government will intervene in the market to force the “big six” suppliers to offer cheaper tariffs if they suspect that the firms are profiting unduly from cheaper wholesale gas and electricity.

In January, bills fell by 2.2pc for customers with the major suppliers, British Gas, Scottish Power, npower, SSE, E.On and EDF, after the Treasury launched an investigation into why firms weren’t passing falling wholesale costs on to their customers.

There is further scope for cuts, said David Hunter of Schneider Electric, an energy management firm.

“While the possibility of a freeze hasn’t directly increased prices, it does means that firms have cut bills by less than they would have done, given wholesale price falls.”

“This might indicate that energy companies could have room to pass through 3pc to 4pc of savings to customers,” said Mr Hunter.

The regulator, Ofgem, said suppliers’ pre-tax margins had risen to £120 a year, or 9pc of the average dual fuel bill.

2. Energy firm price war

Encouraging small, “challenger” energy firms to the market, rather than a price cap, will ensure bills remain low, the Government has said.

Competition from smaller firms, such as Ovo, First Utility and GB Energy, has led annual dual fuel tariffs to drop below £900 for the first time this year. […]

3. The Green Deal’s future

Government handouts for energy-efficiency home improvements are likely to shrink in the next few years, commentators say.

The Tories have not committed to another tranche of Green Deal “Home Improvement Fund” money. This is the scheme that pays up to £5,400 on efficiency measures such as double glazing, insulation and new boilers.

A £540m pot has been set aside for the fund, but it is now up to the incoming Energy Secretary, Ms Rudd, to decide when to release more funds. […]

4. The £112 green levy on your bill

State-backed payments relating to solar panels and our investment in renewable energy add £112 to our annual energy bills.

But this figure, broken down in the chart (below), could be about to shrink under the new government, as the Tories are expected to cut initiatives such as the feed-in tariff and renewable energy projects.

Currently feed-in-tariffs, the income paid to householders with renewable energy generators such as solar panels, add £8 to every energy bill. We also pay £47 towards the Green Deal and its sister policy, the Energy Companies Obligation (Eco), which subsidises energy-efficient improvements in hard-to-treat homes.

“Green giveaways could well be under threat. Those incentives will be on a downward trend under the Tories, who want to find obvious ways to cut efficiency spending,” said Mr Todd.

The Conservatives say they will invest in renewable energy, including the feed-in tariff, “but will only give significant support to those [projects] that clearly represent value for money”.

Ms Rudd, however, is a “champion of renewables”, said Nina Skorupska, the head of the Renewable Energy Association, the trade body. “Her appointment will do much to allay the fears [around renewable energy investment] some may have after the general election,” she said.

But according to Jamie Stewart of energy price-tracking firm ICIS, the Government, including Ms Rudd, is at the mercy of EU targets when it comes to investing in renewables.

“We’re still governed by legally binding EU targets, so the effect of the Tory government on retail bills will be negligible,” said Mr Stewart.

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