BFBEnergyPaper

The British Government has already begun to warn British businesses to expect an increasein their energy costs and has warned medium-sized users of energy to expect cost increasesof between 15-21 per cent higher as a result of both EU and UK policies. The Departmentfor Energy and Climate Change (DECC) has provided a breakdown of how bills are going toincrease over the coming few years which is summarised in Table 1. 26Table 1: Estimated gas and electricity costs for medium-sized business users 272013 2020 2030Average gas bill £520,000 £540,000 £560,000Average electricity bill £1,070,000 £1,360,000 £1,570,000Average energy bill £1,590,000 £1,900,000 £2,130,000What makes this even more concerning is that, as shown above, this increasing burden isnot being felt in other major economic areas, putting British industry at a disadvantage. TheInternational Energy Agency has warned that the price gap between Europe and the US ishere to stay, warning that:“Lower energy prices in the United States mean that it is well-placed to reapan economic advantage, while higher costs for energy intensive industries inEurope and Japan are set to be a heavy burden.”– International Energy Agency 28Why are energy prices increasing?2.3There are numerous factors which drive up the price of energy and drive up the costs forEnergy Intensive Industries (EIIs): wholesale fossil fuel prices, market structure, the state ofexisting infrastructure are just some of the factors which intertwine and shift the price ofenergy to varying degrees on a day to day basis. 29 While working out the exact effect of eachof these drivers on energy prices is not within the remit of this paper, it is worth noting thatthere is also a growing consensus that EU policy has played a small but significant role indriving up EIIs energy bills, a role which is growing.Despite the EU’s claims that the rise in costs is mostly driven by external factors, includingrising fossil fuel prices and the taxes and levies set in the member states, the European26 Non-CRC participant, counting impact of climate change policies, data found at 27 Non-CRC participant, found in Estimated impacts of energy and climate change policies on energy prices and bills, found at28 International Energy Agency, World Energy Outlook 2013 Press Release, found at 29 Factors that have been highlighted by other studies range from the economic climate to the accessibility of fuels to theimpact of legislation (both European and British). In the gas market for example there is a concerning lack of suppliers andgas prices are still often indexed to oil prices. The sheer number of factors that can influence energy prices and the complexway these factors interact means there remains a serious lack of credible and comparable information on what actuallyfinally determines prices and costs of energy for different consumers. There are also factors which influence the globalenergy markets, such as the impact of subsidised coal in China.17