Solar Gains

Bosses of the UK's leading energy companies have told a committee of MPs that bills are likely to rise in years to come.

They told the Energy Committee that the "inevitable direction of wholesale prices" meant domestic bills would get more expensive over the next decade.

Five of the big six energy suppliers were represented at the House of Commons committee.

One suggested that prices could rise by between 15% and 25% by 2020.

The group of companies argued that the energy market was still competitive and profit margins were volatile.

Prices

Bosses of British Gas, EDF Energy, E.On, Npower and Scottish and Southern Energy appeared before MPs.

They were called to give evidence after some had raised prices for domestic customers this winter.

Phil Bentley, of British Gas, said that higher wholesale prices and distribution charges were likely to push up the cost of domestic bills in the next decade. He quoted the 15% to 25% price rise, predicted by Ofgem, by 2020.

They all pointed to the "fundamental issue" of energy efficiency measures being key to cutting domestic use of gas and electricity, and - in turn - this would cut bills.

Mr Bentley said that private landlords should be encouraged to make their homes more energy efficient.

Profits

Energy efficiency had reduced gas use, which also affected businesses' profits, said Alistair Philips-Davies, energy supply director of Scottish and Southern Energy.

This had called into question figures published recently by watchdog Ofgem that put the net profit margin per each typical customer at £90, a 38% rise since September.

Lower consumption meant the figure was closer to £60 per dual-fuel customer, he told the committee, and this would be "substantially lower" by March.

The energy companies said that the high number of people who switched suppliers showed that the energy market was competitive.

"The market in the UK is delivering the lowest prices for gas in western Europe," Mr Bentley said.

He also said that none of 17 inquiries into the market since 2001 had provided any evidence that companies were slow to pass on reductions in prices to their customers.

They said they also provided a range of campaigns on insulation and energy efficiency, as well as help for those struggling with bills.

The energy companies were also keen to accelerate the decision on the introduction of smart meters. These meters offer real-time read-outs of energy use and costs.

The bosses were also quizzed about cold-calling sales of energy on the doorstep and in the street, as well as the "mystifying" aspect of tariffs, and social funds for vulnerable customers.

British Gas customers will face a 7% rise in gas and electricity bills this winter, the company has announced.

The increase, which comes into effect on 10 December, was the result of rising wholesale prices, it said.

The rise affects eight million customers, but the company added that its 300,000 most vulnerable customers would initially not be charged more.

British Gas has become the second major UK energy supplier to announce price increases for the winter months.

It said that wholesale gas prices had risen by 25% since the spring.

"We know that rising energy prices come at a difficult time for many," said British Gas managing director Phil Bentley.

The company said prices for those on a typical dual-fuel deal would go up by £1.50 a week.

Vulnerable customers on the "Essentials" package with British Gas will have prices held until 1 April 2011.

Other suppliers

The announcement comes shortly after Scottish and Southern Energy (SSE) said it was to put up its domestic gas tariffs by 9.4% at the start of December.

SSE blamed wholesale prices for the increase in customer bills this winter, but apologised for the timing.

The announcement, on 29 October, came just before SSE reported a 6.1% fall in pre-tax profits to £386m in the first half of the company's financial year.

It was the first time for two years that standard prices among the "big six" energy suppliers have risen, and follows some price falls during last year.

Earlier this week, EDF issued a challenge to the other main energy providers by announcing it would freeze gas and electricity prices for residential customers over the winter, with standard tariffs fixed until at least March 2011.

Wholesale costs

The announcements could be the start of a trend, according to Ann Robinson of price comparison website Uswitch.

"After a two year lull, household energy prices are about to resume their steady climb upwards again," she said.

"Unfortunately for consumers, the 8% or £99 reduction seen over the last two years failed miserably to reverse the impact of the 42% or £381 increase seen in 2008. And now, whatever small benefit was seen is about to be wiped back out again."

She said the average household bill for a dual-fuel British Gas customer would now go up from £1,157 to £1,239.

Watchdog Consumer Focus argued that energy companies were shifting risk on to customers.

"British Gas and other suppliers respond to forward energy prices, and that will be their argument that price rises are needed," said Adam Scorer, from Consumer Focus.

"However, wholesale prices are around half of their peak in 2008 and yet in the same period customers prices were cut by less than 10%.

"Consumers will feel that suppliers did not make cuts when conditions allowed it, but are covering their profit margins as wholesale prices nudge up. At a time when there are reports of a gas glut it seems that consumers take on all the risk in this market."

If gas prices were increased by the same 7% across the board by energy companies, it is estimated that this would add 0.2% to the Consumer Prices Index measure of inflation in December.

The Bank of England, in its Inflation Report this week, assumed there would be a 10% rise in domestic gas prices before the end of this year - one reason for its higher inflation forecast of 3.5% for the early months of 2011. 

The feed-in tariffs that pay owners of solar panels have survived the coalition's spending review, but key changes have been made. How will they affect you?

In April, the previous government launched feed-in tariffs (FITs) - also known as the clean energy cashback scheme - to pay people who generate green electricity using small-scale solar panels, wind turbines, hydropower and combined heat and power.

What did the government say in the spending review about the tariffs?

The Department of Energy and Climate Change (Decc) said:

Feed-in tariffs will be refocused on the most cost-effective technologies saving £40m in 2014-15. The changes will be implemented at the first scheduled review of tariffs [in 2012, to kick in 2013] unless higher than expected deployment requires an early review

In other words, the feed-in tariff scheme and current rate paid to owners of solar panels remains the same. But there are two new elements here.

Firstly, in the 2012 review, changes will be made to the tariff that cut it by £40m, or 10%, in 2014 and 2015. Those changes won't be announced until 2012, but could take the form of both a 'trigger point' where rates paid fall automatically if a certain number of solar panels and other forms of 'microgeneration' are installed, and a potential cut in rates paid to one or more of the four technologies covered by the scheme.

Second, the government is now saying it reserves the right to bring forward that 2012 review if there's a rush of people and companies installing microgeneration between now and then.

What would this trigger point look like?

Decc isn't saying, and won't tell us until 2012. The cap could be on the total installed capacity (ie in megawatts) or the number of applications, or another criteria. When the government does tell us more, it will then need to consult on the proposals, because the legislation underpinning the feed-in tariffs doesn't include any mention of a cap on volume.

When should I install?

As soon as possible. The rate of 41.3p per unit of electricity for solar panel owners was always only going to be guaranteed until 31 March 2012 and then reviewed in 2013 before decreasing in the following years.

However, what was new in today's announcement was an admission that "higher than expected deployment" - ie a rush of people fitting solar and wind - would lead to that 2013 review taking place earlier. So if thousands of people suddenly decided to install solar panels over the next year, the rate could be cut much earlier than 31 March 2012. Just how much "higher than expected" the rush would need to be to bring forward the review has not been revealed.

How does this affect people who have already installed since April?

It doesn't. Any householder who installed solar panels after 15 July 2009 will still be paid 41.3p per unit of electricity for 25 years, and those before that date will get just 9p per unit.

What do green groups think?

They're pleased the FITs have survived largely intact. Today's announcement was welcomed by the Renewable Energy Association, Good Energy, Friends of the Earth, and other groups. Dave Sowden, Chief Executive of the Micropower Council said: "Today marks the start of a Citizen's Energy Revolution. The Government has sent a clear signal to homes, businesses and investors that the UK Microgeneration sector is well and truly open for business." 

Which?, the consumer watchdog, has highlighted how some companies are offering consumers the solar panel for free. The consumer should enjoy lower electricity bills.

The company offering the panels, in return, keeps the Government subsidy, or so-called feed in tariff.

However, Which? said this could cause the consumer to be ultimately out of pocket because the feed in tariffs were very generous.

A homeowner could save as much as £10,500 by taking out a loan to buy their own system instead.

The report said: "Even if you were living in the UK's sunniest region, the maximum you would save is £412 a year off your electricity bill, compared with the £1,313 that free solar panel companies such as British Gas and Isis Solar will collect from the feed in tariff." 

Free solar panel offers are all the rage at the moment, with several companies, including British Gas, offering consumers the opportunity to 'rent out' their roofs in exchange for free electricity.

What they're not so upfront about is that the companies stand to benefit far more from the arrangement than householders.

Big savings

New research by Which? has found consumers could save as much as £10,500 over the next 25 years by buying their own solar photovoltaic (PV) system instead of signing up to a scheme offering 'free' solar panels.

The consumer champion found that even in the sunniest far South West of the country, 'rent-a-roofers' would only save a maximum of £412 a year off their electricity bill. The company supplying the solar panels, on the other hand, would get £1,313 from the government's feed-in-tariff (FIT), an incentive scheme that gives money for renewable energy.

Consider a loan

Which? experts calculated that even if consumers took out a Which? Best Rate loan to cover the £19,000 that a solar panel system would cost, they would still be thousands of pounds better off in the long run as they would receive the lucrative FIT income for themselves. If you're considering a personal loan, make sure you consult our reviews of personal loans - we've searched the whole personal loans market to find the cheapest loans deal for you.

Anyone thinking about getting solar PV should make sure you choose an installer certified by the Microgeneration Certification Scheme (MCS) to qualify for FIT payments. Our recommendations site, Which? Local, has reviews of solar panel installers by Which? members. We've also got a guide to installing solar panels.

Before investing in any kind of renewable energy, you should also make sure your home is as energy efficient as it can be. Which? has free independent advice on installing loft insulation and wall insulation. Also see our reviews of the best - and worst - energy saving lightbulbs.

Solar water heating

Free solar panel offers are for solar PV panels, which generate electricity. In May 2010, Which? investigated the sale of solar hot water systems and found evidence of exaggerated claims and dodgy sales practices. Check out our video of one salesperson in action.