The affordability of energy is a key component of wellbeing and economic growth. Over the next decade energy prices are likely to rise due to:
increases in wholesale electricity and gas costs as a result of increasing fossil fuel prices and an increase in the deployment of renewables;
government policies aimed at reducing carbon emissions, including taxation; and
the investment in infrastructure that is required.
In addition to this, energy prices are increasingly volatile due to the direct influence of a number of factors including:
declining indigenous energy production in the UK;
an increased reliance on international markets;
increased global demand;
index links between oil and gas markets; and,
actions of some energy-supplying countries.
Domestic energy bills tend to reflect global commodity prices. For energy consumers in the UK, this tends to mean that when wholesale gas and oil prices rise, so does the cost of living. Ofgem – the energy market regulator – has estimated that if the market was left as it is today, annual average household electricity bills could rise by more than fifty percent by 2030 Project Discovery: Options for delivering secure and sustainable energy supplies (Ofgem, 2010).
Government is putting in place a range of energy policies designed to reduce our dependence on fossil fuels and encourage the development and uptake of low carbon energy technologies. The introduction of these policies, whilst supporting the growth of the renewable energy industry, distorts the conventional energy market and drives an increase in the cost of energy.
The increasing cost and volatility of energy prices will impact on the cost of delivering services, and therefore increase the proportion of the County Council’s budget apportioned to energy.
Over time, as energy prices increase, the County Council could be using a higher percentage of its total budget to pay for energy (particularly if budget pressures remain). This will impact on the available budget for delivering other key service areas.
Carbon taxes will also have a significant impact on the cost of energy. As Government’s energy policy leads to high carbon energy becoming more expensive, the County Council will need to undertake long term financial projections and develop strategies to generate and procure low carbon energy, and reduce energy consumption, to help reduce the impact to the County Council from future price rises.
Increased impact on communities (e.g. fuel poverty)
Household energy bills have increased substantially in recent years, tracking sharp increases in energy tariffs, particularly since 2010. Should energy costs continue to rise as expected, the level of fuel poverty in Hampshire will increase. The County Council will also need to consider how to provide affordable energy for rural communities and businesses who are not connected to the grid and reliant on LPG or fuel oil.
Increasing energy costs will have a significant impact on the viability of many Small and Medium-sized Enterprises (SMEs) in Hampshire.