I was agog at the 20 month energy price freeze Ed Milliband announced yesterday. He stated he will freeze energy prices from May 2015 to January 2017.

There is no such thing as a free energy price freeze.

Surely he can’t have thought this through. Energy companies have little control on the prices of the raw materials they use while maintaining their legal responsibilities to shareholders – most shares being held by pension funds and insurance companies.

They can’t control their costs without incurring risks and extra costs. If they hedge costs by buying raw material options ahead of need, guessing future raw material prices, they can get this seriously wrong. This risk has to be paid for. That means higher prices for consumers.

A price freeze takes retail pricing out of the energy company hands leaving limited options for them. If their input costs rise above some level they can absorb they can either withhold and not produce and sell energy potentially leading to blackouts. More likely they’ll hedge raw material costs and pay for this either before the freeze with extra price rises between now and the 2015 general election or borrow and pay for the borrowing by post freeze additional price rises. Considering Ed Milliband also talked about breaking up the energy companies the latter option wont be practical. So we should all expect ot see exttra prices between now and May 2015 as energy companies prepare for the freeze.

There is no such thing as a free energy price freeze.