How Will Energy Prices Change Under Labour?

Will energy prices rise or go down under Labour? And what are their plans for the energy industry during their time at Number 10?
Jayme Hudspith
July 9, 2024
-
4 min read
An energy plant at night.

Labour's victory in the 650-seat parliament election marked the end of a 14-year conservative rule. The Conservative Party, led by Rishi Sunak, experienced its worst performance in history.

Earlier this week, we discussed each political party's manifesto and outlined the promises regarding energy and the environment. Now that Labour has secured more than 60% of the seats, we have analysed how their victory has impacted energy rates and commodity charges.

What is a commodity charge?

A commodity charge, also known as a usage charge or wholesale cost, is one of the three main components on your energy bill, alongside network costs and government obligations.

The wholesale cost represents the supplier's cost for purchasing energy in advance on the wholesale market to provide energy to their customers. It is the most volatile component of the bill, and its price can be influenced by various factors such as weather, geopolitical events, political policies, gas prices, competition, and more.

How does the wholesale energy market work?

The wholesale energy market allows suppliers to buy and sell large quantities of energy to and from one another. In today’s market, smaller independent energy producers can also participate, leading to the growth of new energy companies.

Since energy markets were deregulated, end-users have experienced:

  • More reliable service
  • More efficient transmission of energy
  • Better price transparency from suppliers

How does the wholesale market affect my energy prices?

Changes in the wholesale energy market can impact your bills, depending on the type of energy tariff you have. Variable rate tariffs may see price increases if the market becomes less competitive. However, fixed-rate tariffs will not be affected by wholesale changes, as the unit rate is locked in for the contract's duration. Wholesale energy prices account for almost half of your bill.

What does the Labour Party manifesto pledge?

The Labour Party’s manifesto has outlined an ambitious and comprehensive plan for tackling climate change – placing it as a central economic and social party. The pledges include:

Green New Deal: The Labour Party has proposed a Green New Deal which will target net-zero goals to reduce carbon emissions by 2030 including large-scale investment in renewable energy – aiming for 90% of electricity and 50% of heat to come from renewable sources by 2030.

Public Ownership: The party is advocating to bring key utilities into public ownership, including the national grid and major energy suppliers, to facilitate the transition to green energy and ensure affordability.

Job Creation: Labour is backing the creation of millions of green jobs by investments in renewable energy, home insulation, and green infrastructure projects.

Transport and Housing: Labour plans to electrify the transport network, including railways and public transport, and transition to electric vehicles. They also propose a massive home-building program with all new homes meeting zero-carbon standards.

Biodiversity and Nature: The manifesto includes commitments to rewilding programs, planting two billion trees by 2040, and protecting marine habitats.

How could Labour's policies affect energy prices?

Renewable energy investment: Labour's focus on renewable energy may lead to increased investment in wind, solar, and other green energy projects, initially causing a rise in prices for renewable energy stocks and related commodities.

Subsidies and regulation: The introduction of subsidies for green energy and stricter regulations on fossil fuels could increase the cost of traditional energy sources, resulting in higher electricity and gas prices in the short term.

Energy security and independence: Labour's policies promoting energy independence may influence the market by reducing reliance on imports and stabilising prices in the long run.

How could Labour's policies affect wholesale costs?

Infrastructure spending: Labour's infrastructure projects, including housing and transportation, may drive up demand for construction materials like steel, cement, and timber, increasing their prices.

Trade and tariffs: Adjustments in trade policies, including potential tariffs or trade agreements, may impact wholesale costs by altering the cost and availability of imported goods.

Market reactions:

Investor sentiment: Initial market reactions included volatility as investors adjusted to the new policies. Sectors aligned with Labour's agenda, such as renewable energy, infrastructure, and technology, could see increased investment over time.

Currency fluctuations: The value of the British pound may fluctuate based on market confidence in Labour's economic policies, which in turn affects the cost of imported commodities.

How political policies have impacted energy prices previously:

Politics and the energy market are innately tied. Political influence extends beyond the House of Commons, even small acts of legislation can impact the energy sector. The supply of energies like gas, electricity and coal requires a huge amount of logistical aid, which means it requires backing from many government bodies.

One of the most prominent recent examples of politics influencing energy prices is Brexit.

Following the 2018 election, the UK became increasingly reliant on Europe for its energy after Britain’s prominence in the North Sea as a source of oil was rapidly depleted. This reliance meant the UK were at a disadvantage in its negotiations to leave the European Union, prompting warnings that Brexit would drive up electricity and gas bills by making energy trading less efficient.

Even before Brexit became central to the debate, the escalation of energy prices has been a key political issue: energy bills in Britain more than doubled over the past decade, prompting the government to introduce the energy price cap in 2019.

Leaving the EU also had implications for the UK’s commitment to renewable energies. The lack of government support for renewables following the withdrawal of the Feed-in Tariff (FIT) and Renewable Obligation for new projects damaged the role that solar and wind could potentially play.

In contrast, Labour has now committed  large-scale investment in renewable energy – aiming for 90% of electricity and 50% of heat to come from renewable sources by 2030 and bringing key utilities into public ownership to ensure affordability.

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Will energy prices rise or go down under Labour? And what are their plans for the energy industry during their time at Number 10?

Labour's victory in the 650-seat parliament election marked the end of a 14-year conservative rule. The Conservative Party, led by Rishi Sunak, experienced its worst performance in history.

Earlier this week, we discussed each political party's manifesto and outlined the promises regarding energy and the environment. Now that Labour has secured more than 60% of the seats, we have analysed how their victory has impacted energy rates and commodity charges.

What is a commodity charge?

A commodity charge, also known as a usage charge or wholesale cost, is one of the three main components on your energy bill, alongside network costs and government obligations.

The wholesale cost represents the supplier's cost for purchasing energy in advance on the wholesale market to provide energy to their customers. It is the most volatile component of the bill, and its price can be influenced by various factors such as weather, geopolitical events, political policies, gas prices, competition, and more.

How does the wholesale energy market work?

The wholesale energy market allows suppliers to buy and sell large quantities of energy to and from one another. In today’s market, smaller independent energy producers can also participate, leading to the growth of new energy companies.

Since energy markets were deregulated, end-users have experienced:

  • More reliable service
  • More efficient transmission of energy
  • Better price transparency from suppliers

How does the wholesale market affect my energy prices?

Changes in the wholesale energy market can impact your bills, depending on the type of energy tariff you have. Variable rate tariffs may see price increases if the market becomes less competitive. However, fixed-rate tariffs will not be affected by wholesale changes, as the unit rate is locked in for the contract's duration. Wholesale energy prices account for almost half of your bill.

What does the Labour Party manifesto pledge?

The Labour Party’s manifesto has outlined an ambitious and comprehensive plan for tackling climate change – placing it as a central economic and social party. The pledges include:

Green New Deal: The Labour Party has proposed a Green New Deal which will target net-zero goals to reduce carbon emissions by 2030 including large-scale investment in renewable energy – aiming for 90% of electricity and 50% of heat to come from renewable sources by 2030.

Public Ownership: The party is advocating to bring key utilities into public ownership, including the national grid and major energy suppliers, to facilitate the transition to green energy and ensure affordability.

Job Creation: Labour is backing the creation of millions of green jobs by investments in renewable energy, home insulation, and green infrastructure projects.

Transport and Housing: Labour plans to electrify the transport network, including railways and public transport, and transition to electric vehicles. They also propose a massive home-building program with all new homes meeting zero-carbon standards.

Biodiversity and Nature: The manifesto includes commitments to rewilding programs, planting two billion trees by 2040, and protecting marine habitats.

How could Labour's policies affect energy prices?

Renewable energy investment: Labour's focus on renewable energy may lead to increased investment in wind, solar, and other green energy projects, initially causing a rise in prices for renewable energy stocks and related commodities.

Subsidies and regulation: The introduction of subsidies for green energy and stricter regulations on fossil fuels could increase the cost of traditional energy sources, resulting in higher electricity and gas prices in the short term.

Energy security and independence: Labour's policies promoting energy independence may influence the market by reducing reliance on imports and stabilising prices in the long run.

How could Labour's policies affect wholesale costs?

Infrastructure spending: Labour's infrastructure projects, including housing and transportation, may drive up demand for construction materials like steel, cement, and timber, increasing their prices.

Trade and tariffs: Adjustments in trade policies, including potential tariffs or trade agreements, may impact wholesale costs by altering the cost and availability of imported goods.

Market reactions:

Investor sentiment: Initial market reactions included volatility as investors adjusted to the new policies. Sectors aligned with Labour's agenda, such as renewable energy, infrastructure, and technology, could see increased investment over time.

Currency fluctuations: The value of the British pound may fluctuate based on market confidence in Labour's economic policies, which in turn affects the cost of imported commodities.

How political policies have impacted energy prices previously:

Politics and the energy market are innately tied. Political influence extends beyond the House of Commons, even small acts of legislation can impact the energy sector. The supply of energies like gas, electricity and coal requires a huge amount of logistical aid, which means it requires backing from many government bodies.

One of the most prominent recent examples of politics influencing energy prices is Brexit.

Following the 2018 election, the UK became increasingly reliant on Europe for its energy after Britain’s prominence in the North Sea as a source of oil was rapidly depleted. This reliance meant the UK were at a disadvantage in its negotiations to leave the European Union, prompting warnings that Brexit would drive up electricity and gas bills by making energy trading less efficient.

Even before Brexit became central to the debate, the escalation of energy prices has been a key political issue: energy bills in Britain more than doubled over the past decade, prompting the government to introduce the energy price cap in 2019.

Leaving the EU also had implications for the UK’s commitment to renewable energies. The lack of government support for renewables following the withdrawal of the Feed-in Tariff (FIT) and Renewable Obligation for new projects damaged the role that solar and wind could potentially play.

In contrast, Labour has now committed  large-scale investment in renewable energy – aiming for 90% of electricity and 50% of heat to come from renewable sources by 2030 and bringing key utilities into public ownership to ensure affordability.

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