At the Labour party conference Ed Miliband announced a bold promise of freezing energy prices for 20 months. The immediate impact was the share price of SSE and Centrica dropping some five per cent each. Although Ed Miliband is right in the respect that the UK energy market does require a vast overhaul, the capping of a commodity, be it power or wheat is fundamentally unrealistic. There is also little anyone can do to stop the ‘Big 6’ from increasing prices to hedge any potential freezes.
The consequences of an outage at a power station, another longer than normal cold snap or one of our storage facilities blowing up again, all have an adverse effect on the price of a commodity. To freeze the price and have those market fluctuations will mean vast losses for the energy companies.
What would happen when the price freeze ends? In order to recoup such loses they will have to wait till the end of the freeze where one of the largest hikes in prices could be seen. It is unlikely the energy companies would look to spread the losses over a significant number of time. It is more than likely that they would want a near immediate recovery.
The scare tactic coming from the energy firms is that the freeze will prevent investment in the UK infrastructure. However the reality is, they are fearful that competition will increase and there will be dwindling investment in themselves. They are afraid that investment into the supply side of power and gas will go to new entrants into the market thus taking away their stronghold.
What can we do to mitigate price increases? Look internally, making yourself energy efficient making necessary improvements to prevent wasting of energy used.