Npower announces energy prices hike

Energy giant RWE npower heaped more pressure on households today by hiking electricity and gas prices by 9.3% and 11.1% respectively from December 1.

The 10% average bill increase will affect about 3.1 million customers, the group said, and follows recent price hikes by British Gas and SSE.

The announcement came as Britain sealed a deal with French energy EDF to build the first nuclear power station in a generation at Hinkley Point in Somerset, after lengthy wrangling over taxpayer subsidies.

Npower blamed the higher cost of delivering power to homes, meeting Government schemes and rising fuel costs, insisting it makes a "fair return for delivering reliable energy to consumers".

The price hike will mean an average dual fuel customer's bill rises by £137 a year, from £1,323 to £1,459.

Npower, the third of the so-called "Big Six" to drive through bill increases, also raised tariffs by 8.9% last November.

Mark Todd, director of price comparison service energyhelpline, said: " This is devastating news and is proof to cash-strapped consumers that customer loyalty reaps no benefits.

"The truth is that there is nowhere to hide from the energy hikes and more suppliers are set to follow suit."

Bill hikes will add more upward pressure to stubbornly high inflation, which currently stands as 2.7%, far outstripping average wage growth of just 0.7%.

Npower's announcement follows Labour leader Ed Miliband's pledge to freeze energy prices for 20 months if his party wins the next election, and is likely to intensify the debate over the soaring cost of living.

But RWE npower chief executive Paul Massara said a bill freeze would not lead to lower sustainable prices because it would not cut the cost of supplying energy, adding that the German group only aims to make a profit of around 5p in the pound.

He said: "Only 16% of the bill is under our control and imposing price controls discourages investment, increases uncertainty and ultimately leads to higher prices."

Npower insisted more than 500,000 customers on fixed contracts will not be affected.

British Gas recently announced it is hiking electricity bills by 10.4% and gas tariffs by 8.4% - affecting 7.8 million households - while SSE said it is hitting seven million customers with an 8.2% rise.

Customer-owned energy firm Co-operative Energy also recently announced a tariff hike of 4.5%, and called on its larger rivals to put customers before profits, saying it was absorbing some of the increasing costs of buying wholesale energy.

Mr Miliband said the announcement underlined the need for a price freeze.

"Neither the energy companies, nor the Government want Labour's price freeze because they are content for prices to carry on rising at 10% a year," he said.

"We've got a Prime Minister who is standing up for the energy companies, not hard pressed families. That's why we need Labour's price freeze.

"The reason prices are going up is because you've got a broken market and you've got companies that are overcharging people. That's why we need to take action."

Asked for the Prime Minister's response to npower's announcement, David Cameron's official spokesman said: "Nobody wants to see higher bills.

"He very much understands why households are angry."

Responding to Archbishop of Canterbury Justin Welby's call for energy companies to be "conscious of their social obligations" , Mr Cameron's spokesman said: "This is a major area of public concern, so it is hardly surprising that the Archbishop of Canterbury would highlight the issue."

Professor David Elmes, head of Warwick Business School's global energy MBA programme, said the cost of worldwide energy was pushing prices up in the UK.

"This is not good news for customers, but reflects the reality that energy prices around the world are rising and it should be remembered that the UK is still below average for retail gas and electricity prices in Europe," Prof Elmes, who worked in the energy industry for 20 years, said.

"Keeping energy as affordable as possible needs greater transparency from companies and the right form of collaboration between them and the Government to make the investments needed while ensuring continued supplies.

"When you look at today's energy market, there are companies who generate power, those who distribute it to homes and offices and the energy retailers who we pay our bills to.

"What we pay our energy retailer includes the costs for all stages as well as the cost of various government programmes to encourage improved energy efficiency and growth in sources of renewable energy.

"Energy companies are making about 5% profits at the moment and we pay about £100 per year in our bills to support programmes for energy efficiency and renewables.

"The energy companies make relatively less of their profits from being an energy retailer.

"There are many retailers other than the 'big six' but they remain fairly small otherwise they would have to add the costs that the Government imposes for investment in renewable energy sources, energy efficiency programmes and help with fuel poverty.

"The generation and distribution parts are more profitable but that's where a lot of investment is needed to develop new sources of power and improve the way power is distributed around the country.

"Without that investment, there's the rising concern about keeping the lights on. There are more generating companies than the 'big six' and what profits they make is heavily influenced by the way the Government runs the market for the power they produce - and we have a bill for electricity market reform working its way through Parliament at the moment.

"So while it's easy to blame the power companies for price increases, the reality is that costs are rising worldwide and the UK is investing to ensure we have secure and sustainable energy in the future."

EDF chief executive Vincent de Rivaz said the company had not taken a decision on whether to follow suit and increase prices, but any rise would be "at the lowest possible level".

At a press conference to announce EDF's involvement in building a new nuclear power station at Hinkley Point, he said any change in prices will be done in a "sensible" way.

Energy secretary Ed Davey said the government will continue to press for firms to be transparent over any price rises.

He added there were now 15 independent companies competing with the so-called Big Six, so consumers had more choice of supplier.

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