Electricity Costs Rising in the United Kingdom

As coal and nuclear face scrutiny for environmental reasons, Britain becomes more dependent on natural gas, driving up the price.

ScottishPower, a subsidiary of the Spanish utility company Iberdrola since 2006, recently announced sharp price increases. From August, ScottishPower’s customers will pay 19 percent more for gas and 10 percent more for electricity. The other five integrated energy suppliers that operate in the United Kingdom — Électricité de France, E.ON, RWE, Scottish and Southern Energy and Centrica — are expected to announce similar price rises.

While the hike in gas prices has generated anger in the British news media, according to Nigel Hawkins of the libertarian Adam Smith Institute, they are hardly unexpected. Wholesale gas prices has been rising for months. “This trend heavily impacts electricity generation costs,” he writes: “gas fired plant is now increasingly dominant.”

Looking forward, it is difficult to see much relief. With new nuclear build a decade away at best — the Fukushima accident makes this even less likely — the United Kingdom is becoming ever more dependent on gas generation. Any new coal-fired plant is seriously compromised by environmental issues and the considerable expense of addressing them. And renewable generation is hardly cheap, especially if the cost of backup plant is included.

Germany’s utterly irrational decision to abandon nuclear energy by 2022 only pushes up the price of gas further. Europe’s largest economy will become more dependent on imported coal from Poland and gas from Russia. Meanwhile, environmental policy will prevent Europe’s largest energy suppliers from diversifying as coal and nuclear are anathema to many lawmakers. Électricité de France will dominate the nuclear energy market while the remaining companies grow fixated on natural gas.

“Driven also by rising food input prices,” writes Hawkins, “inflation remains well above target. Serious energy uncertainties and rising inflation are a potent combination for any government,” he points out. “Anybody remember the 1970s?”