Energy bills: why gas and electricity prices fluctuate
Gas and electricity bought on the wholesale market are affected by a range of
factors, but there are still ways you can save money on your bills
The boss of British Gas predicts energy prices will rise for 10 years – terrible news
given that the proportion of people calling debt counsellor National Debtline who are
suffering "energy debt" has risen from 2.7% in 2004 to 13.7% in 2011.
British Gas faced calls to cut the price of energy after reporting annual pre-tax profits
of £2.4bn in February. However, much of this profit was generated by the oil and
exploration business, which has offset a slump in earnings in the domestic retail business,
despite prices for electricity going up by 18% and gas 26% since December 2010. So how
does the market for energy actually work, and why are prices so high?
Where and how do energy companies buy gas?
Gas and electricity are bought on the wholesale market from electricity generators,
gas producers and importers. Some is bought on a short-term basis, to meet extra demand
if there is a cold snap, but a large proportion is bought a long way in advance of when it
will be used. Longer-term gas and electricity purchases are made over different timescales
and at different prices, ensuring there is always energy when customers flick a switch and
helping to smooth out price fluctuations. This is called hedging.
However, it can sometimes backfire on suppliers. Christine McGourty, chief
executive at the energy companies' trade association Energy UK, says the UK's energy
suppliers bought lots of gas during the prolonged cold snap in the winter of 2010/11, only
to be left with much of it unused. They sold it back into the wholesale market later in the
year, causing gas prices to fall.
To complicate matters further, the "big six" suppliers in this country are also energy
producers, so buy and sell at the same time.
What factors affect wholesale prices?
Since 2004 Britain has used more gas than it has produced, meaning gas prices are
increasingly influenced by world events that affect availability.
A war or natural disaster in a country that produces gas or oil is likely to reduce
production and accessibility, pushing prices up. In 2011, the conflict in Libya saw oil prices
jump to a two-and-a-half-year high, while the earthquake in Japan disrupted nuclear
power generation, meaning Japan bought more liquefied natural gas, putting it in direct
competition with British buyers.
According to the regulator Ofgem, in winter Britain relies on gas supplied through
pipes from Belgium and Norway. To buy this gas we have to pay at least as much as
1
customers in mainland Europe, where prices are linked to high oil prices. As a large
proportion of electricity is generated by burning gas, this has a knock-on effect on
electricity prices.
What other things affect the cost of energy?
Prices are also affected by market reforms proposed by Ofgem, and tax charges
imposed by the government.
The networks which transport energy from the producers to the regional distribution
networks, and then to your home, comprise about 20% of your bill, but the ageing
infrastructure needs replacing. The government also has to meet carbon reduction targets
and spend money on energy efficiency programmes. Ofgem reckons all this will cost about
£30bn over the next 10 years.
I've read that wholesale gas prices are down. Why aren't my bills falling too?
All of the big six suppliers have cut prices in the past few months, but are still under
pressure to reduce costs further. Energy companies do not always pass on wholesale cost
increases immediately and, likewise, falling wholesale prices may not immediately result
in bill reductions.
It may seem hard to believe, but compared with consumers in other European
countries Britain's domestic energy prices are relatively low: London comes 12th out of 15
capitals for electricity, with only Helsinki, Paris and Athens enjoying cheaper energy; for
gas, London is the cheapest place in Europe to be, according to research by E-Control and
VaasaETT.
So if my supplier won't cut the price, how can I reduce my bills?
Check if there is a cheaper deal you can switch to. You can contact your provider to
see if it can offer some assistance or switch you to a social tariff; alternatively you could
switch provider.
Which? says UK consumers are over-paying energy suppliers by £4bn a year and
have missed out on £16bn in the past four years by not switching tariffs. Its Big Switch
campaign is encouraging people to sign up by 31 March and become part of a collective
bargaining group that will be able to negotiate big savings from the UK's major energy
firms.
Alternatively, the PeoplesPower concept aims to use consumers' collective
bargaining power to set up reverse auctions with energy companies, buying at the lowest
rate possible for customers. As a not-for-profit community it charges a £2 handling fee to
pass on more savings to customers.
If you can't wait to make savings, check out deals through the Guardian's switching
service.
2
The next thing to do is reduce energy consumption in your home. All the energy and
water companies offer information on their websites about saving energy and money, and
most offer free gadgets or discounts to help you do so.
Teenage fiction and iPads now in official UK shopping basket
The ONS said tablet computers such as iPads had been added as they represent a
'significant and growing market'
Tablet computers and teenage fiction such as the Twilight books have been added to
the basket of goods and services that is used to calculate UK inflation. Casserole dishes,
step ladders and charges for developing film have dropped out.
The latest changes, announced by the Office for National Statistics on Tuesday
morning, reflect the nation's changing buying habits. The ONS said tablet computers such
as iPads had been added as they represent a "significant and growing market". Fiction was
previously covered by children's and adult books, but with the growing popularity of
many titles aimed specifically at teenagers, they have also been added to the basket on
their own.
Bundled communication packages comprising telephone, internet and television are
also included for the first time. Cans of stout, such as Guinness, have been added to widen
the coverage of beers in the basket, along with pineapples, hot oat cereals and takeaway
chicken and chips.
In addition, vehicle excise duty, television licence fees and trade union subscriptions,
which are currently only used to calculate the retail prices index, will also be used in the
consumer prices index.
However, the popularity of digital cameras means that charges for developing and
printing colour film have been removed from the inflation basket. Glass ovenware
casserole dishes and step ladders are also out.
In some cases new items are direct replacements for similar products that leave the
basket. For example, walking and hiking boots have replaced outdoor adventure boosts,
and a bag of foam sweets has replaced a bag of boiled or jellied sweets.
The ONS is increasingly collecting prices from large supermarkets as they venture
into new areas such as toys, umbrellas and handbags.
Technology products and services have regularly been added to the inflation basket
in recent years. Twelve months ago, the ONS added smart phones and apps. The list can
shed light on changing spending patterns; in 2010, lip gloss and fish fingers were added,
as the basket got a 1980s twist.
3
Iris Apfel: the muse of New York
After a lifetime of dressing in her own flamboyant manner, at 90, Iris Apfel is
delighted to find herself New York's latest fashion muse
Iris Apfel was 83, and 13 years into her retirement, when she became a celebrity. The
year was 2005, and the Metropolitan Museum in New York staged an exhibition of her
wardrobe. This included some of Apfel's collection of exquisite pieces by rarified Paris and
New York designers: there was a coat of multicoloured rooster, duck and fowl feathers by
Jean-Louis Scherrer from 1962, and an orange jumpsuit by Geoffrey Beene from the early
80s. But what made the show a word-of-mouth success that hit a nerve beyond the usual
reach of Costume Institute fare was the unique way Apfel wore these pieces, which was
recreated on the mannequins.
A typical display note ran as follows: "House of Lanvin gown, circa 1985, gold,
brown and gray silk taffeta. Bhutan arm bracelet, late 19th century, silver and amber. Tibet
cuff bracelet, late 19th century, silver, amber, coral and turquoise. Tibet necklaces, early
20th century, silver, amber, coral, turquoise." The orange jumpsuit was displayed with
Native American jewellery and belt, in silver and turquoise; each mannequin in the exhibit
wore Apfel's signature owlish glasses. As the New York Times art critic Roberta Smith
once wrote: "before multiculturalism was a word, Mrs Apfel was wearing it".
Seven years on and Apfel at 90 is a great deal more famous than she was at 83. She
gets recognised on the street and trailed by fashion bloggers. She has an entertainment
lawyer and her own range of costume jewellery. "I have a fan base," she told a recent
interviewer with undisguised glee. She has become a muse for New York fashion: Ralph
Lauren based a 2006 collection on upholstery fabrics as a tribute to Apfel's work as a textile
designer; last month, Apfel attended as guest of honour a catwalk show that the designer
Joanna Mastroianni billed as being inspired by Apfel's style. Mac cosmetics this year
launched a range of Iris Apfel colours, including Pink Pigeon and Scarlet Ibis, referencing
the name of the Met show – Rare Bird – and Apfel's penchant for bright colours. Apfel
stars, along with Anna Wintour, as a New York grande dame in the documentary Bill
Cunningham New York, having been a regular in Cunningham's photos for several
decades, and is set to be the subject of her own documentary by Grey Gardens film-maker
Albert Maysles.
Now the story of Apfel's style, having travelled from a personal closet to a museum,
and from there to the front row and the big screen, is about to make the transition to the
shopfloor. Sandra Choi and Simon Holloway, the creative directors of Jimmy Choo, have
named a mini collection of maximalist, colourful, ethnic-glamour accessories in her honour
this summer. The Iris sandal, handwoven in leather macramé, the classic tan shade set off
by a cascade of yellow, red, green and blue resin beads, is what every modern-day Apfel
will be wearing in Ibiza this summer.
4
Apfel has described herself as "the world's oldest living teenager". The young Iris
sounds pretty marvellous: she tells a great story about how, as a young woman, she came
to be friends with Duke Ellington. She got dressed up, went backstage after a gig, and
knocked on the dressing room door. Ray Nance, Ellington's trumpeter, opened it and
asked: "Lordy, lordy – who's your tailor?" and a friendship was born. As a student, she
won the Vogue writing prize, which led to a first job on Womenswear Daily. After
marrying Carl Apfel, they set up Old World Weavers, whose reproductions of antique
fabrics became essential accessories for the smartest households, until the Apfels
eventually sold the company and retired.
To give some measure of their success: Old World provided curtains, furniture and
drapes for the White House through nine presidential administrations. As a result, the
Apfels live a gilded uptown life in a Park Avenue apartment with "a possible Velasquez"
on the wall.
But Apfel has seized the imagination not as a couture fashion plate but as an
example to a free-spirited, adventurous New York mindset that, these days, seems in
danger of getting lost beneath the anodyne beauty of a Manhattan aesthetic that worships
cosmetic dentistry and blow-drying above individuality or creativity. Marc Jacobs, another
New Yorker with a craving for adventure in his clothes, told the International Herald
Tribune recently that "it's the life of these [clothes] that's interesting to me … whether you
find yourself on a curb after partying in a dress, sitting on the curb smoking a cigarette at
the end of a night or whether you get whisked away by your Prince Charming."
Apfel has a story to tell about each of her outfits; she insists that hers is not a fashion
collection, because she bought every piece to wear. "I'm a hopeless romantic. I buy things
because I fall in love with them. I never buy anything just because it's valuable," she says.
The unifying principle is excess. "My look is either very baroque or very Zen – everything
in between makes me itch."
Like a true New Yorker, Apfel does a great one-liner. One of her best is: "When you
don't dress like everybody else, you don't have to think like everybody else." She is far
from immune from fashion snobbery, and has been known to rail against fat people
wearing stretch jeans, and anyone at all wearing flip-flops, but she speaks sense on the
subject of ageing. "Coco Chanel once said that what makes a woman look old is trying
desperately to look young. Why should one be ashamed to be 84? Why do you have to say
that you're 52? Nobody's going to believe you anyway, so why be such a fool? It's nice that
you got to be so old. It's a blessing."
