By Chris Welby, Good Energy’s Commercial Director

A report just published by the Royal Society claims that energy prices are too cheap to afford the investment required to de-carbonise our energy industry. The report also urges investment in energy efficiency to help meet our carbon targets.

All reasonable industry commentators recognise the underlying trend in energy prices is upwards. The only way consumers can avoid hefty rises in energy bills in future (Uswitch recently predicted average household energy bills of £5,000 by 2020) is to use less. As the p/kWh rises, then just to pay the same, consumers will have to reduce their consumption – or start generating their own.

This creates a conundrum. The report, like several others before it, seeks higher energy bills to give the energy companies funds to invest, or for energy taxes to allow the government to act. But if the customers react to higher energy prices by reducing consumption (by implementing energy efficiency measures, or by generating their own like many of Good Energy’s customers), then the hike in prices will not bring in the cash.

A good example is the network. Hundreds of millions of pounds need to be spent to develop what many describe as the “Smart Grid”. Most of the costs of this are fixed, but consumers pay by unit used. If consumers use less, then the pence per unit will have to increase to cover these costs, causing a bigger reduction in consumption… a spiralling circle begins to develop.

The thought of energy prices spiralling ever upwards is not one politicians are keen to draw people’s attention to. However, as those likely to be hit most are probably those least able to afford it, politicians need to find the solution. Let’s hope the forthcoming white paper has some good ideas from the government.

In the meantime, we can help as best we can. The Good Energy Shop can help customers with energy efficiency, and to generate their own using micro generation. We also continue to engage with government to get smart meters into homes and businesses, and move towards a decentralised energy market with mass take up of micro generation and heat (see our HotRocs scheme).