Beyond comparison

A European Commission report into energy prices across Europe illustrates the difficulty of making direct comparisons between end user tariffs. Richard Westoby explains why.

A report published last week by the European Commission contained some interesting comparisons of energy prices in the UK and the rest of Europe. It highlighted that UK domestic gas and electricity end prices are the cheapest and fifth cheapest, respectively, in the EU15.
However, there is an important distinction between tariffs and the bill you end up with. The other big variable that influences the size of the bill is the amount of energy consumed. Despite having much cheaper energy prices than, say, Sweden, UK households end up paying more because they are much less energy efficient (http://bit.ly/1b8iw2h).
The unit price of gas in Sweden is more than double that in the UK, which shows just how significant a factor the energy efficiency of our housing stock is in determining how much we pay.
These kinds of comparisons are useful in getting a sense for how competitively priced energy is on a country-by-country basis. However, when it comes to exactly how bills are made up in different countries, like-for-like comparisons of the individual components can be misleading.
As Eurelectric – the Europe-wide electricity trade body – pointed out last week: “The breakdown of other price components remains unclear. In many countries the cost of power generation support, most notably for renewables sources, is hidden in network costs and various taxes and levies. The Commission acknowledges that this makes a meaningful comparison between network charges and end-user prices across Europe impossible, but fails to explain the differences between countries sufficiently. This may lead the reader to draw wrong conclusions.”
The graph, taken from the Commission’s report, shows how varied the bill breakdown appears to be in each country, and looking at this in isolation without understanding the market make-up could lead to simplistic conclusions (the UK is on the far right of
the graph).
Put simply, while the report does its best, it doesn’t necessarily compare apples with apples. For instance, UK network costs (in red) appear to account for a smaller proportion of the bill than they do in other countries, while the wholesale element (in blue) seems disproportionately high.
This is because in the UK some network and metering costs, such as transmission charges and the smart meter rollout, are included in the energy or wholesale component, which is not the case for much of the rest of Europe. In some of the data, such as that compiled by Eurostat, social and environmental levies are included in the energy component for the UK.
Another major discrepancy is the fact that, in many member states, policy costs (particularly social policy costs) are paid for through general taxation rather than through energy bills. In the UK this isn’t the case, meaning that the price people pay for their energy is higher than it would be if these costs were recouped through direct taxation.
At SSE we’ve been campaigning for these policy costs to be transferred to general taxation and the Government has taken an important step in the right direction by committing to provide all electricity customers with a £12 rebate in the autumn, funded through taxation for the next two years and providing a small amount of relief to customers from the burden of social and environmental schemes on their bills. But more could be done and in time all policy costs should be transferred to general taxation.
Another progressive solution would be for the revenues the government receives from carbon taxes, also paid for by consumers through their energy bills, to be used to fund energy efficiency programmes.
This idea, put forward by the Energy Bill Revolution campaign group, would have the advantage of reducing energy consumption and therefore bills by using existing revenues already paid for by energy consumers. Countries including France and Germany have pledged to adopt this approach.
So overall, the report highlights that despite the relatively low prices paid by customers in the UK, it is difficult to draw meaningful comparisons between the different components of the bill, and more work needs to be done to improve transparency so that consumers across Europe know they are paying a fair price for energy.
The UK still has a lot to do to improve the efficiency of its homes, bring costs down and ensure they are paid for more fairly. At SSE we’ll continue to campaign for this, and we are encouraged to see that the Commission’s report agrees that “it is generally more efficient to protect such vulnerable consumers through social policy measures rather than through energy pricing”.