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Gas and Electricity Prices

By David Holmes on June 29, 2008

Gas and Electricity Prices: Now and in the Future

Gas and electricity prices are set in part by the global market. The cost of transporting gas from one country to another and the cost and availability of fuel for electricity generation are contributory factors. Massive increases in the cost of oil, gas and coal on global markets have resulted in similarly sharp rises in domestic gas end electricity prices in the United Kingdom in 2008 and further increases – possibly between 30% and 40% according to some estimates – are predicted by the end of the year. Indeed gas prices to the consumer from some energy providers are already lower than the wholesale price of gas and this situation clearly cannot continue.

Oil prices have almost doubled in the past 12 months and with North Sea reserves dwindling Britain is more reliant than ever on imported oil and gas. The problem is exacerbated by the limited storage capacity for gas in Britain compared to some other countries which means that gas cannot be bought cheaply during the summer for consumption during the winter.

The situation regarding gas prices is unlikely to improve in the next decade or so and a similar comment applies to electricity prices. Reliance on imported gas is likely to increase resulting in further price rises and the electricity generation sector is likely to face very tight margins. It may be that government intervention in the gas and electricity markets – in the form of subsidies, etc. for consumers – is necessary in the future. In any case renewable energy sources such as solar hot water heating are likely to become more prominent in the domestic energy market.