GO
Loading...

UK energy companies under pressure to explain price hikes

Michael Marquand | Lonely Planet Images | Getty Images

The U.K's "big six" energy companies will be grilled by U.K. lawmakers on Tuesday about the reasons behind hiking their consumer energy bills by an average of 9.1 percent just ahead of the onset of winter.

The companies -- EDF Energy, SSE, Scottish Power, Npower, E.ON UK and British Gas – have been asked to explain the increases when wholesale energy costs have only gone up 1.7 percent over the past year, according to data from Ofgem, the U.K.'s energy regulator.

With the consumer increasingly angry over bill hikes and politicians calling for more regulation of the energy sector, company bosses are due to appear before the government's energy select committee on Tuesday to respond to the mounting anger.

The issue has turned into such a political hot potato that the opposition Labour party has promised a 20-month energy bill freeze if elected at the next election and last week, former Prime Minister John Major called for a "excess profits tax" on energy companies' profits

Gerard Reid, partner at Alexa Capital, a corporate advisory across the energy infrastructure sector, agreed with criticism of the sector, saying that customers in the U.K. had not had a "fair game" in terms of power prices and treatment, compared to their continental neighbors.

"The reality is that what you see in continental Europe is huge price falls across Germany, Franc e and across the board except for in the U.K." Reid told CNBC Europe's "Squawk Box" on Monday.

"This divergence has only taken place in the last few years and the divergence is such that the German wholesale power price is at 50 percent lower than the U.K. power price. We need to bring British power prices in line."

As well as blaming an increase in wholesale prices, the "big six" companies attributed the energy bill increases to higher operating costs and government schemes to encourage investment in renewable energy.

Earlier this month, executives from Europe's leading energy companies told CNBC that they were pushed to invest heavily in renewable energy and technology by the European Union only to run into rules that differ from country to country, an inadequate Europe-wide emissions-trading system and problems with subsidies.

(Read more: Energy leaders warn of blackouts across Europe)

In addition, they complained that the shale gas revolution in the U.S. has further upset European energy companies' competitiveness and their profit margins.

Angela Knight, chief executive of Energy UK, the trade association for the country's energy industry, said that rather than "taking the punches" from the government and consumers over price rises, energy companies were making an effort to clarify the rationale behind price increases.

"Things have always been added onto the energy bill and there's never been real clarity about what you were paying for and as a customer, whether as a householder or as a business, the assumption was that it all came from the energy companies," Angela Knight told CNBC on Monday.

(Read more: US shale revolution leaving Europe in the cold)

"Now, everyone who has put out their price increases so far has accompanied it with a real breakdown of every single part of the bill -- including their own profits – so they've put in their operating costs, VAT costs, the transmission and distribution costs and they've put in those renewable elements."

Knight added that companies were having to pay for a "very, very significant investment" in the U.K. as the country looked to meet climate change targets by moving to renewable energy. "Nobody is saying that the policy of investing in renewables in wrong, they're saying that it has a coast and the cost needs to be transparent and the policy makers need to decide how it's paid for."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

Symbol
Price
 
Change
%Change
EDF
---
SSE
---

Featured

Contact Energy

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More