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cashinmattress

Uk Household Utility Bills Could Double Every Five Years Until 2020

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Here’s one for the tabloids to get stuck into – UK household utility bills could double every five years until 2020.

That’s the view of Unicredit which has been looking into affordability in a review of the utility sector.

It says rising cost pressures from new environmental and social programs obligations (the Carbon Emissions Reduction Target, Smart Meeting for example) combined with rising network charges (Ofgem reckons £32bn of investment is required) means that household utility bills are set to rocket. And that’s before the impact of commodity prices is taken into consideration.

In our view, the cost pressures from environmental and social programs and rising network charges will mean that household bills will continue to increase in real terms for many years to come. This excludes the impact of commodity price movements which could increase tariffs even further. We believe that these increases will make it harder for supply companies to pass on their costs to customers and will negatively impact the margins they can achieve going forward. We also believe that this will be exacerbated by the issue of affordability – with customers likely having to spend more of their disposable income on their energy bill in the future. According to our analysis, a typical UK energy bill could rise from the current level of GBP 1000 per year to over GBP 2000 per year by 2015. As investment occurs, bills could double every five years until 2020, in our view.
According to DECC,
“fuel poverty” is defined as any household that needs to spend 10% or more of its income to adequately heat the home
. Since 2004, the number of households defined in this way has increased every year. Given the uncertain macroeconomic outlook, we do not believe that wages will increase anywhere near as much as energy bills – meaning that more households will be defined as fuel poor

Hmm.

But if you thought spiralling bills were good news for the big utility companies and their fat cat bosses (irony intended) think again. Unicredit analyst and former Ofgem regulator Scott Philips says the big energy suppliers will find it difficult to pass on these high costs to increasingly cash-strapped consumers.

We believe that the consensus view currently assumes that energy suppliers will be able to earn a long-run margin of 6-7%. In our view, rising environmental costs and higher network charges will cause energy bills to rise significantly over the next few years – at a significantly higher rate than household incomes. We therefore believe that suppliers will find it ever harder to pass on their input costs to the detriment of margins. In our models, we assume a long-run margin of 5%.
And Phillips, who has whacked “sell” ratings on Centrica, Drax, National Grid and Scottish & Southern Energy, also has some interesting things to say about security of supply for the UK.
While the United Kingdom was once a net exporter of gas, having produced sufficient quantities to meet domestic demand, it now relies on imports to bridge the gap as old fields decline. However, we believe that the steep contango in the gas forward curve includes a hefty “security of supply” premium that, in our view, is unwarranted. We believe that the shortfall between domestic sources and demand will likely be met from a combination of the following sources – imports from Norway, continental Europe and Liquefied Natural Gas (LNG) shipped from the Middle East. Arguably a more diversified source of supply reduces delivery risk, rendering any premium in the forward curves unnecessary, in our view.
LNG imports to rise: Qatari gas production will increase significantly in 2011 and much of it will likely arrive at UK or European hubs and not the US or Asia. In our view, the continued high spread between the US and UK gas price – at USD 4.5MMBTu – will ensure cargoes continue diverting to Europe. Falling UK gas prices will negatively impact UK power prices and coal generation economics.

I suppose, for many, that the cost of maintaining the loan on your house is taking probably near 50% of take home pay. Tack on the cost of living and this proposed increase in energy (of which I am well aware of due to working in the industry), well, it's going to be lights out.

But 10% of your pay over the winter months is nothing really. It's much higher in other western economies, like Canada and the northern US where you get months of -20° and more. My oil bills a few years back, living over the pond, were sometimes 50% of my take home, or more, just to stay comfortable. No pub money was depressing.

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house prices are set by mortgage finance, which is set on estimated affordability of said income repayments. Simply put, if people can afford less (owing to higher utility bills) then they will pay less for houses and, other things being equal, house prices will drop.

Rental yields will be suppressed by a similar effect, also putting downward pressure on house prices.

Another negative pressure adding to my 20 year housing bear market hypothesis

Edited by Si1

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As a renter of an oil-heated house, I would have said that prices have already been more than doubling very 5 years for the last decade. Filling up the oil at £1000 every 6 months when the landlord isn't interested in putting in better windows and insulation was getting tiring.

As a new owner of an oil-heated house, I'm taking the opportunity to insulate it to extremes before we move in, insulating the roof with the equivalent of 350-400mm of rockwool and the whole 1st floor with around half that. Estimated payback period is under 2 years.

P.S. Npower run a scheme that renters can use where you can put up to 270mm of rockwool insulation in your loft for £3/roll, works out at about £100 for a loft with no insulation at all in it. Take it with you when you leave! Paybak period should be one winter.

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As a renter of an oil-heated house, I would have said that prices have already been more than doubling very 5 years for the last decade. Filling up the oil at £1000 every 6 months when the landlord isn't interested in putting in better windows and insulation was getting tiring.

As a new owner of an oil-heated house, I'm taking the opportunity to insulate it to extremes before we move in, insulating the roof with the equivalent of 350-400mm of rockwool and the whole 1st floor with around half that. Estimated payback period is under 2 years.

P.S. Npower run a scheme that renters can use where you can put up to 270mm of rockwool insulation in your loft for £3/roll, works out at about £100 for a loft with no insulation at all in it. Take it with you when you leave! Paybak period should be one winter.

The advantage of living in a third floor apartment(s). In London my gas (water/heating) bill is less than £200 per year thanks to my neighbours (its a poorly insulated as well. In my 3 floor flat in Poland it needs to sink below -10c before I need to switch on the heating.

However, in my farm house I used 1.5tonnes of coal to stop the place freezing over winter, at a cost of 1100zloty. Average wage here is 3500, 30% of income is already spent by millions of country dwellers on keeping warm over winter.

I cannot believe the claim that bills will double every five years, the prices already cover the cost of alternative energy sources - Solar and wind power is falling all the time. Solar is already cheaper than nuclear energy and the cost is falling like a brick. Even if they build a load of new nuclear plants its not going to get twice as expensive, probably cheaper with new technology. Supplies of natural gas have rocketed due to fracturing.

>>It's 2011 now, so does that mean they will double once?

Exactly. The report is scaremongering ********.

Edited by Peter Hun

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We need more energy efficient houses.

I've always felt there should be insulation in between the ground and first floor in a house to slow down the heat loss.

Sleep on a platform and you'd be in the warm bit of the room maybe?

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house prices are set by mortgage finance, which is set on estimated affordability of said income repayments. Simply put, if people can afford less (owing to higher utility bills) then they will pay less for houses and, other things being equal, house prices will drop.

Rental yields will be suppressed by a similar effect, also putting downward pressure on house prices.

Another negative pressure adding to my 20 year housing bear market hypothesis

.....agree, mortgage affordability is set on availability of proven disposable income, what is the point of lending money to people who would struggle to repay?....why rent to people, or for that matter governments who do not have the ability to pay?

I am sure the powers that be could if they wanted find ways around this like a lifetime debt to be transferred from generation to generation, shared ownership,guarantors, fixed rents with long renewable leases etc

...high price property and rents have to be at a price people are ready, willing and able to pay...take that away and what have you got....new problems that require new solutions? ;)

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We need more energy efficient houses.

I've always felt there should be insulation in between the ground and first floor in a house to slow down the heat loss.

Unlike most of Europe, the UK hasn't changed the basic premise for designing and building new houses for nearly twenty years.

It's lazy and nothing short of scandalous, especially when you factor in the price of buying one.

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We need more energy efficient houses.

I've always felt there should be insulation in between the ground and first floor in a house to slow down the heat loss.

The EU introduced a very sensible system where houses for sale and now for rent have to have an energy certificate. This was intended to give us more energy efficient houses. However, all I have ever seen in the media is criticism of the scheme and how it should be scrapped.

Perhaps now it should be illegal to offer for sale or rent anything that does not meet a base criteria? Much as incandescent light bulbs have been outlawed (not sure that has saved any energy but hey that's another debate)

My friend bought his house a few years back in Luxembourg - it is triple glazed and super insulated. The house is three bed detached and heated by a central unit taking about 2Kw or the equivalent. Its also very nice and the kind of place I would actually buy.

UK property is for financial speculation (like in China) I think people must have misunderstood this if they are actually living in these places :o

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Solar and wind power is falling all the time. Solar is already cheaper than nuclear energy and the cost is falling like a brick.

Too bad there's not much sun in the winter then.

Buy a thicker jumper and stop worrying about being a little chilly before sealing your house up so tightly that you breath in the same air over and over again.

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  • 311 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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