Are Europeans paying too much for their energy? For years, household energy prices in Europe have been increasing at a faster rate than in America (and the International Energy Agency has warned that the “energy gap” with the US is going to put European industry at a disadvantage for decades). How can we bring down our bills?
There’s obviously a lot of variety in energy prices between EU countries (with Germans, Danes, and Belgians paying the most for their electricity, while Bulgarians, Lithuanians, and Hungarians pay the least). Furthermore, whilst energy prices across the EU have increased since 2008, they have nevertheless been relatively stable since around 2013. Still, energy can represent a big proportion of the average household budget, and with belts having been tightened for much of the last decade, should the price of energy be a top priority for the next EU Commission?
What do our readers think? First up, we had a comment sent in by László, who thinks energy prices are too high in Europe relative to what the average person earns in each Member State. Is that objectively true? Are high energy prices a problem?
To get a reaction, we put his comment to Hans Van Steen, Head of Unit of DG Energy in the European Commission. What would he say?
For another perspective, we put the same comment to Lucie Middlemiss, Associate Professor in Sustainability at the University of Leeds in the UK, and Co-Director of the Sustainability Research Institute. How would she respond?
Good question! So, I would say energy prices are definitely too high for some people in Europe, in the sense that there is a substantial demographic of people that experience energy poverty, and those people struggle to pay their energy bills. So, it’s a very difficult question because there’s a tension between the need for providing energy to people irrespective of their level of income, and the concerns that we have about climate change and the use of energy, and how consuming energy creates climate change problems. However, I think price is a poor way to regulate that. The current situation, particularly in my country – in the UK – is that people in lower income brackets really have to spend a lot of their money on energy, and as a result they don’t use enough, they get unhealthy, and we have lots of other costs to society associated with that.
Next up, we had a comment from Civanova about capping energy prices. The UK is currently experimenting with this policy (due to be launched in 2019), but Chivanova is worried that capping bills will discourage investment in infrastructure. Is she right to be concerned?
How would Hans Van Steen from the European Commission respond?
And what would Lucie Middlemiss from the University of Leeds have to say?
First, I’d say that it’s really not the case that energy prices are being capped in a meaningful way in the UK. There is some sort of limit on how much energy companies can charge to customers, but there’s always a profit margin within that, and it’s quite a substantial profit margin. It’s also particularly in relation to pre-paid metered customers, so people who pay in advance for their energy. And, still, the costs of energy for those people are still substantially higher than the costs for the rest of the market. So, while it might sound like we’re capping energy prices in the UK, we’re not really. We’re sort of making sure that no-one is charged a ludicrous amount of energy, but we’re not necessarily capping all energy prices.
I think capping profits is quite similar to capping prices, really. In the sense that, ultimately that’s the objective of capping prices. I think she’s right, it could discourage investment in infrastructure because there isn’t any room for manoeuvre for companies if they have capped prices, but having said that so would that be the case if they capped profits. I don’t think it would make much of a difference.
One of my colleagues here talks about the prospect of changing the pricing structure for energy. At the moment, you quick frequently pay more for the first amount of energy you get, because you pay a standing charge on gas and electric, and then you pay less as you consume more. What that does is it penalises the people who consume less, and I think it would make a lot of sense to try and do the opposite of that: so, allow a certain amount of energy at a low price, and as households consume more and more and more, charge more for the extra they use. Because that would probably help reduce use, but also it would mean that energy-poor households had access to cheap energy. Having said that, there are exceptions – so people with some forms of disability will always need to use more energy, and we have to be sensitive to that because they have different needs to those without disabilities…
Finally, we had a comment from Tarquin, who blames the EU for high energy prices across Europe. He thinks that EU competition laws have fragmented the energy market, and that green levies have pushed up prices. Is he right?
How would Hans Van Steen respond to this criticism?
What about Lucie Middlemiss? Did she agree with Tarquin that EU policies are to blame?
Green levies pushing up prices is not happening at an EU level, it’s at the national level. But I think he’s got something there, in that if we charge environmental policy back through energy prices, which we do in the UK (though I’m not sure about all the other EU nations), then that’s really problematic. Basically, my opinion is that environmental levies ought to be paid for via general taxation, because then the price of energy is not effected by the need to do things about both environmental problems but also social problems. So, currently, energy efficiency policy can really make a difference to people living in fuel poverty as well to environmental targets, and both of these things are funded through prices. I agree that that’s wrong. I don’t think it’s got anything to do with the EU though.
In terms of EU competition, yes, I also think that’s problematic. In the EU there’s a strong drive towards so-called “free market for energy”, which doesn’t exist anywhere. In the UK, we know that because we’ve had a liberalised market for the longest out of all the EU nations, and still we have a really low number of people actually engaging with the market in the way they’re supposed to. That’s because the market doesn’t really work, particularly for people in energy poverty because very often they’re too scared to engage in switching, because it’s a form of change and feels very risky if you’re on a low income. Quite often they’re not able to; if they’re in debt then energy providers won’t take them on, for instance. So, I think the idea of the market is not working in reality, and as a result energy prices – particularly for the energy poor – end up being higher than they should be…
Are energy companies charging too much? Should bills be capped? Or would that discourage much-needed investment and slow the transition to green energy? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!
IMAGE CREDITS: (c) BigStock – Sashkin
This debate is part of the SHAPE ENERGY project. By participating you are confirming you are 18+. Contributions to the debate may be directly quoted (anonymously) in the SHAPE ENERGY reports. If you do not want your contribution to be used, send us an email within two weeks of posting your comment.
This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 731264.