Extracts from NATTA's journal
Renew, issue 145Sept-Oct 2003

14.NETA prices not right

The National Audit Office, the independent body that looks at government programmes, has concluded that although the New Electricity Trading Arrangements (NETA), has been associated with a 40% fall in the wholesale price of electricity since 1998, when the market was liberalised, these savings have not be passed on to consumers. Industrial and commercial users of electricity have only seen reductions of 18% since the start of NETA, while average prices for domestic consumers have fallen little since the start of NETA. However, customers who have switched supplier since the 1998 liberalisation have achieved 17% savings.

The NAO explains the anomaly like this ‘Although nearly 40% of electricity customers have switched supplier, the apparent reluctance of others may have dampened price competition, so enabling suppliers to charge up to 22% more to consumers (staying) with their original supplier than they charge to attract new customers.’

So much for consumer loyalty! And so much for the idea that we dare not consider higher prices for electricity to reflect the environmental impacts of energy generation. Some consumers seem blissfully unaware that they have, in effect been charged 22% more for no apparent gain- other than the coffers of the energy suppliers.

The NAO report rather lamely recommends that Ofgem should keep under review why domestic consumers who have not switched supplier have benefited much less than other consumers from falling wholesale prices.

Full Report:http://www.nao.gov.uk/

New Discount rate?

Help may be at hand though- the latest edition of the Treasury Green Book has revised recommendations on test discount rates- for assssing the merits of investment in public sector projects. The 6% TDR recommended in 1997 has been unbundled into a figure of 3.5% plus an allowance for ‘optimism bias’. For really long low-maintenance projects, the 3.5% figure falls off reaching 1% for projects lasting more than 300 years. This could make nonsense of the 8% discount figure used in past renewables studies. The new Green Book is at:
www.hm-treasury.gov.uk/economic_data_and_tools/greenbook/data_greenbook_index.cfm

See particularly Appendix 6 on Discounting and also the Supplementary Guidance on ‘Optimism Bias’