Days of cheap energy are over

Predictions of further energy price rises have today become reality with EDF Energy announcing price increases of 22% or £143 for gas and 17% or £65 for electricity coming into effect immediately. It means the average EDF Energy dual fuel bill will go up from £1,007 to £1,211 - an increase of £204. However, in total, customers will have seen an increase of 33.53% or £304 since the beginning of the year when the average EDF Energy dual fuel bill stood at £907.

Blaming the move on record wholesale energy prices, EDF Energy said that these had increased by up to 70% since it last put its prices up in January and had ‘impacted hugely on the cost of supplying energy to our customers.'

But the writing has been on the wall for some time. Although the EDF Group reported a 5.2% increase in sales for the first quarter of 2008, its UK business, EDF Energy, saw a 15.9% drop year-on-year - its sales for the first quarter of 2007 totalled Euro 2.6 billion, compared with Euro 2.2 billion Q1 2008.

Senior industry insiders have already predicted further price rises of up to 40% this year, which would bring the average household energy bill to a crippling £1,467. However an independent report, commissioned by Centrica, said that households could see gas bills alone rocket to over £1,000 ‘within the next few years'.

Today's move is expected to kick-start the second round of price rises. As a result, the outlook for consumers appears bleak. By the end of 2008, if energy bills do hit £1,467, spending on energy will account for 5% of the average household's net income. It would mean an unprecedented 61% or £555 increase in the average household energy bill in one year.

A further 40% increase in energy prices this year would also tip an extra 1.6 million into fuel poverty, taking the total from 4.5 million to 6.1 million - a 36% increase. However, if over the next few years we see a 60% hike in bills, as the report commissioned by Centrica seems to suggest, an extra 2.4 million will be plunged into fuel poverty, taking the total to an incredible 6.9 million - a 53% increase.

The bad news is that rocketing global wholesale gas prices, the soaring cost of oil and the UK's lack of storage facilities will continue to impact on prices going forward. If current wholesale gas trading prices continue at over £1 per therm, this could translate into a further 10% to 15% going onto household energy bills in the first half of 2009. What is becoming clear is that the days of cheap energy are over and households will have to adjust to paying far more for their gas and electricity.

Ann Robinson, Director of Consumer Policy at uSwitch.com, says: "After weeks of speculation and warnings, the axe has finally fallen. Although EDF Energy is the first supplier to succumb to the inevitable, this is not going to be a unilateral move - other suppliers are suffering too and are sure to follow suit over the next weeks or months.

"The days of cheap energy are over - today's move means we are another step closer to seeing the largest ever increase in household energy bills in one year - we are potentially looking at a 61% or £555 increase in total this year. If industry insiders are correct and the average energy bill hits £1,467 by the end of 2008 then spending on energy will account for 5% of the average household's net income. We are in danger of seeing household energy becoming unaffordable for growing swathes of society.

"This is not just a short-term spike - an independent report commissioned by Centrica warns that gas bills alone could top £1,000 within the next few years. Consumers cannot afford to ignore this - they need to take action now to stand any chance of limiting the impact of higher prices.

"Online energy plans remain a good option for those who want to pay a lower price now and are happy to take their chances on the market in the future. However fixed or capped price plans could be a lifeline for those who are more vulnerable to price rises. These plans carry a premium, but if you've never switched before you will probably still save money immediately by moving to one. However, the best fixed and capped deals are disappearing fast so consumers need to act quickly."