EDF Energy holds back full impact of rising charges for customers
- Announces price rise of 3.9% from Jan 3, less than half the size of increases announced by competitors
- Saves typical customer at least £80 compared with major energy suppliers who have increased prices
- Customers benefit now from anticipated reduction in ECO charges, call for wider review of growing costs
- 34% more EDF Energy customers to benefit from Warm Home Discount in 2014
EDF Energy is holding back rising costs, including from the Government’s ECO social and environmental scheme in order to limit price rises for customers.[i] The company recognises that a price rise is especially unwelcome in the current economic climate, but believes that today’s action to limit the growth of bills is an important step.
It means the company’s new average standard variable price – which will be effective from January 3, 2014 - will now be £1,300[ii], a rise of £49 a year. EDF Energy’s new standard variable price will be between £80 and £96 lower than competitors who have recently announced price increases.[iii]
The company has taken action ahead of the outcome of the Government’s review of the costs of ECO and other schemes.
If the Government makes bigger changes to the costs of its social and environmental schemes than EDF Energy has anticipated, the company pledges to pass these savings onto customers. However, if changes to social and environmental programmes are less than anticipated, the company may have to review its standard variable prices again.
EDF Energy is working with policy-makers to look at ways in which the full range of environmental and social programmes can be made more affordable for consumers. The cost of these programmes, which are not paid in full by smaller suppliers, is currently expected to be £158 a year for a typical dual fuel customer in 2014.[iv]
The move means it will be more difficult for EDF Energy’s residential supply business to be profitable next year, but the company believes it is important to limit price increases for hard-pressed customers this winter. EDF Energy’s retail business has also ensured its own costs won’t add any extra burden to customers by seeking to reduce its operating expenditure.
Breakdown of costs
EDF Energy’s wholesale buying strategy means that the impact of wholesale price rises has been reduced to almost zero. It is able to be entirely transparent about the other rising costs which make up the price rise for standard variable customers.
- Transmission and distribution: 9% increase in costs from network operators makes up 1.9% (£24) of today’s increase
Costs from network operators for the pipes, wires and pylons used by suppliers are rising as the system is upgraded. These costs are regulated by Ofgem.
- Smart metering: rising costs make up 0.8% (£10) of today’s increase
This is the cost associated with setting up the roll out of the smart meter programme
- Renewable obligations – a 22% rise in costs makes up 0.5% (£6) of today’s increase
These additional costs increase the UK’s renewable energy capacity
- Wholesale energy: a less than 1% increase makes up 0.1% (£1) of today’s increase
This is the cost of the gas and electricity which energy companies have to buy on the wholesale market.
- Other rising costs including VAT, Warm Home Discount, Feed in Tariff make up the remaining 0.6% (£8)
Call for further action
Today’s move follows calls last month from EDF Energy Chief Executive Vincent de Rivaz for suppliers, politicians and consumer groups to work together to bear down on rising costs.
For example, the smart meter programme targets 100% of homes, including those that are hard and expensive to reach. Reducing the target to 80% by 2020 would be more effective and affordable for customers. EDF Energy estimates that this and other measures could reduce the industry cost of the smart meter programme by £1.8bn.
Whilst wholesale prices are currently stable, non-energy costs are pushing bills upward. If wholesale prices resume their upward trajectory, then the burden on bill-payers will be even greater.
The cost from network operators to renew and upgrade the distribution and transmission networks used by suppliers is also adding to rising bills and these costs need to be challenged.
Vincent de Rivaz has also repeated his long-standing call for a Competition Commission inquiry into the energy supply market. And he renewed his proposals for policy-makers and Ofgem to adopt petrol-forecourt style pricing. This would abolish standing charges and regional variations so that prices can be easily compared by consumers.
Today he said: “The best way to help customers is for us to keep our prices as low as possible. I know that price rises are always unwelcome, but we have taken the first step to show what can be done if rising costs are tackled head-on.
“I support the ambitions behind these social and environmental programmes. We delivered the CERT and CESP[v] energy efficiency schemes on time and on target. We are ahead on the ECO scheme and our experience has been positive but we must also challenge the cost and affordability of this and other schemes. Something can and must be done for consumers.
“Energy firms, politicians and consumer groups need to be part of the solution and stand on the side of customers to give them energy at an affordable price. That means operating as efficiently as possible and designing the most cost-effective social and environmental programmes.”
This will be the first standard price change by EDF Energy for 13 months. Around one third of EDF Energy customer accounts are fixed tariffs and will not be affected by the price increase. And customers can still fix their prices for four winters with EDF Energy’s Blue +Price Freeze March 2017.
EDF Energy has had the cheapest standard dual fuel direct debit prices of the major suppliers for all but three weeks in 2013[vi] and its Blue fixed priced deals come without exit fees – meaning customers can leave for free at any time.
EDF Energy is also making changes to some of the discounts it offers. This includes the removal of its dual fuel discount, which is worth 70p a month, and is factored into the price increase announced today. Customers will be sent letters explaining how the changes – which will be implemented at the same time as the new prices - will affect them.
The company remains committed to helping vulnerable customers. The number of EDF Energy customers who will benefit from the Warm Home Discount – worth £135 a year - is expected to increase by 34% in the next financial year (2014/15) to more than 246,000.
Eligible low income customers can also benefit from the company's Trust Fund which has paid grants to 26,000 people to help clear household debts and a free money advice service run by the Citizens Advice Bureau.
[i] ECO, the Energy Company Obligation is a government scheme to insulate homes paid for by electricity bill-payers. It is expected to cost each dual-fuel customer £98 a year in 2014.
The most expensive ECO target to deliver is called the Carbon Emissions Reduction Obligation (CERO). It targets hard-to-treat homes and is not aimed at vulnerable people. We believe that reducing this target for CERO by 50% will lead to significant savings. We do not propose changing targets for elements of the scheme which target and benefit vulnerable customers.
[ii] This figure is based on a national average of regional prices for customers with typical consumption and paying by monthly direct debit. Typical consumption as defined by Ofgem is 3,300 kWh electricity and16,500 kWh gas consumption and 5,000 kWh of electricity for Economy 7 meters. Include info on changing consumption rates.
[iii] EDF Energy Dual Fuel Direct Debit annual bill (£) ranking amongst other major suppliers which have recently announced price changes:
Average National Percentage increase
*Figures based on typical dual fuel consumption, defined by Ofgem as 3,300 kWh electricity and 16,500 kWh gas consumption - and are correct once the announced price changes become effective. Note bill values include relevant discounts and VAT charged at 5%, and are rounded to the nearest whole pound.
[iv] Based on EDF Energy’s estimates of how much it will cost to deliver the government’s social and environmental programmes in 2014.
[v] These are the Carbon Emissions Reduction Target (CERT) and the Community Energy Saving Programme (CESP). EDF Energy installed 900,000 insulation measures in homes across the country and completed energy efficiency improvements in 350,000 households - classed by the Government as being on a low income or vulnerable. The Government’s CERT and CESP schemes began in April 2008 and September 2009 respectively and set energy suppliers and generators individual targets for promoting reductions in carbon emissions
[vi] Based on the same assumptions as outlined in the second bullet point. Major suppliers are: British Gas, SSE, Scottish Power, Npower and E.ON.