SSE fixed energy prices to Jan/2016(6 Posts)
So what can we make of the announcement that the energy company SSE is freezing gas and electricity prices until January 2016 – that dictates from South American type dictators like El-Milibando to ‘control’ prices actually work – and that SSE are preparing for a May 2015 Labour victory?
Well we know price controls in the distant past always have seem to have adverse repercussions, but I suspect there are a number of commercial considerations going on here, helped over the short run, as SSE mention in their press release, by the government lowering green and other levies, not the threats of El-Milibando.
So as energy prices are volatile, HOW are they really able to absorb the (potential) cost of a general price freeze, rather than the usual smaller ‘special’ plans for those that want to lock prices in for over a year, usually at a price premium to current tariffs?
Sure, they could have raised their prices more than most over the winter, have a company view that energy prices will fall over the next 2-years, or have/will use energy futures contracts to ‘hedge’ their price exposure for the period – maybe a combination of all three,
The commercially and environmentally sad reason might be ahead of a 18-month regulatory enquiry into the industries prices, the proceeds from their decision to downsize and raise £1 billion from cutting staff and either selling, or curbing, the development of offshore and onshore wind farms, could financially hedge their 2-year cost exposure.
When governments try to ‘fix’ markets, IMO there are always negative repercussions.
the new chief exec at SSE has cancelled, closed or reduced a lot of their investment in new technology. Probably this is because he thinks it will not be profitable and they would be pouring money down the drain. This may have been influenced by the prospect of price controls.
SSE also has a lot of generating capacity. Their hydro-electric generators are not dependent on fuel costs. At a guess, they will have secured fixed-price contracts for supply of other fuels which are sufficient for them to make a confident guess on what their costs and revenues will be, and have constructed a business plan based on simplicity and low costs. I presume that if market prices increase, they are under no obligation to accept new customers wishing to buy their cheap energy.
Of course, if they are not investing, the prospect of energy shortages increases, but that's the free market for you.
P.J..... I missed the hydro-electric factor, good info, it makes a big difference to this companies costs. D'oh.
"Boss of Britain's largest energy firm Centrica warns of mass blackouts after investigation in to Big Six providers is announced"
•Ofgem announced today that it intended to launch a competition probe into Britain's biggest energy companies
•Centrica boss Sam Laidlaw claims investigation will deter investment
•Insists there is an 'increasing risk' of the lights going out thanks to uncertainty surrounding the future of energy markets
•Consumer group accuses Laidlaw of 'unnecessary scaremongering'
•Government says he is 'totally wrong' as Ofgem defends investigation
The good news appears to be that the energy regulators seems to have sniffed a cartel’s pricing malarkey going on, but have not said so directly.
The bad news is that we have allowed 20 odd companies become 6, giving them the power via the need for energy infrastructure investment here to believe they can build a bit of extra margin into their prices – and if the companies/shareholders don’t like it, they can vote with their feet e.g. SSE's wind turbine farms investment sell off.
The current market and political uncertainty is already creating concern among investors,”
We’ve looked at the dire state of our energy market on another board here (see link below), and we badly need that investment, and while (so far) as some investment leaves, new investment arrives, that may not last.
Other countries have options of their energy mix e.g. Germany and France hope to reduce nuclear in their energy balance, we on the other hand, due to under investment will see our power outages within a few years, on the first bad winter UNLESS we take out of mothballs power plants that have closed.
I wonder if there is something fishy about the UK energy market that causes UK customers to pay more than most other European customers?
oh no... they don't
What made anyone think they did?
P.J….Interesting international comparisons, anyone would think that there is political mileage in identifying energy companies as one of the causes of ‘the cost of living crisis’, or what others might technically call ‘a honking great recession’ – and I’m yet to find any historical recession, anywhere in the world, where living standard rose in a recession.
Equally interesting is that when Messrs Brown & Balls came in, oil was roughly $20 a barrel and over several years, oil rose to an all time high around $147 – does anyone remember the Labour administration LOWERING the costs of petrol etc to consumers?
In actual fact from 1997 onwards they raised extra taxes virtually annually via the Fuel Escalator, to company cars mileage, minor oils such as Fuel Oil and Red Diesel, and if memory serves, in Budgets prior to the 2010 General Election, they baked in Fuel Duty price rises AFTER the election – that’s how concerned they were about UK energy costs to ‘the people’.
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