Npower to raise energy prices by 10.4%

Npower admitted that the price change would be unwelcome for customers

Energy firm Npower has become the third major supplier to announce price rises, with a dual-fuel bill to go up 10.4%.

The price rise will take effect on 1 December, and is the highest increase announced by any supplier so far.

SSE will increase prices by 8.2% from 15 November and British Gas said prices would go up by 9.2% on 23 November.

The Npower increase includes an electricity price rise of 9.3% and a gas price rise of 11.1%. The move will affect 3.1 million customers.

The change will add an extra £137 to an annual average dual-fuel bill, taking it to £1,459.

'Unwelcome'

Between August and December last year, the "big six" energy companies outlined price rises of between 6% and 10.8%.

"I know that any increases to household bills are always unwelcome, and this is not a decision that we have taken lightly. We will continue to take steps where we can to reduce the impact of the external influences on energy bills," said Paul Massara, chief executive of Npower.

Npower echoed the view of the other suppliers by saying that the rise was the result of cost increases in delivering energy to homes, fulfilling government schemes and raw materials.

The company said that it "aimed" to make a profit of five pence in the pound, which it regarded as a "fair return" for delivering energy reliably to people's homes and for the risks it has to take on.

Clare Francis, of price comparison website Moneysupermarket, said she expected the other major suppliers to follow suit with price rises.

"The domino effect has really kicked in," she said.

But Npower said that all suppliers faced the same pressures on costs, so there was a "natural tendency" for prices to move at the same time.

"When Tesco puts up the price of a loaf of bread by 5p no-one is surprised if Sainsbury's do the same because they are subject to the same costs. We are clear that the market is competitive," the company said.

It also challenged the view that prices shot up when wholesale costs went up but fell slowly after wholesale costs dropped.

Yet, Stephen Fitzpatrick, the founder of Ovo Energy, said that he had not seen any rises in wholesale prices recently. The company, one of the smallest energy suppliers in the UK, put up prices earlier in the year.

Political row

The energy price increases have coincided with considerable political debate about the cost to households.

Labour leader Ed Miliband has pledged a price freeze for 20 months if his party wins the next election. But Prime Minister David Cameron branded Mr Miliband's price freeze plan as a "con", saying that he did not have control over the worldwide price of gas.

Mr Massara, of Npower, said that the Labour proposal was "superficially attractive", but it would not lead to lower sustainable prices.

"It doesn't cut the growing costs of supplying energy. Only 16% of the bill is under our control and imposing price controls discourages investment, increases uncertainty and ultimately leads to higher prices," he said.

The latest price rise comes on the day the government has given the go-ahead for the UK's first new nuclear station in a generation.

There are fears from one consumer group that energy bills could go up, as the owners of the nuclear plant are being guaranteed a price for electricity.

"Rising energy bills are one of the top concerns for cash-strapped consumers, so everyone will want to be assured that the price the government has agreed for new nuclear power is fair," said Richard Lloyd, executive director at Which?.

France's EDF Energy will lead a consortium, which includes Chinese investors, to build the Hinkley Point C plant in Somerset. Ministers say the deal will help take the UK towards low-carbon power and lower generating costs in the future.

Consumer groups, including watchdog Consumer Futures, are calling for reviews to look at the structure of the energy market, and to consider the costs and benefits of government policy.