Tuesday, 10 April 2012

Gas prices will rise due to increased distribution costs, networks warn

Gas network owners have raised the prospect of escalating energy costs beyond 2020 after predicting that distribution costs will rise by up to 27% by the beginning of the next decade.

Network companies including National Grid have told the energy regulator that the cost of upgrading their facilities will rise by double-digit amounts between 2013 and 2021 – an increase that would ultimately be passed on to consumers if it is waved through.

The estimates led one energy commentator to warn that the energy-related financial squeeze on UK households was coming from "all sides".

Network owners claim that the cost increases will pay for the replacement of steel pipes with plastic tubing, and cover the cost of disruptive street works.

In submissions to the Ofgem watchdog, Northern Gas Networks, which supplies energy to 2.6 million customers in northern England, said costs would increase by 27%. The largest distributor, National Grid, which covers 10m homes including in London, proposed cost increases of 11%, and the second largest, Scotia Gas Networks, which covers Scotland and the south-east, claimed costs would also rise by 11%. Wales and West Utilities put forward the second highest increase, at 22%.

The GMB trade union, which represents around 30,000 energy industry workers, warned that thousands of jobs were at risk due to the increased use of subcontractors in the eight-year plans. "We are in a perfect storm for consumers," the union said. "In an industry that is less safe, with lower standards of service, it is the economics of the madhouse."

The gas networks supply energy to a total of 20m homes in the UK.

Mark Todd, director of the Energyhelpline.com price comparison site, said the submissions underlined the financial toll exacted on households by energy costs. Distribution costs account for around 20% of a household gas bill. According to Todd, the average daily gas bill has more than doubled since 2002, from 91p to £2.06.

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