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High Energy Costs Risk Impact on UK Broadband and Mobile Prices

Friday, October 1st, 2021 (9:41 am) - Score 1,656
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As the cost of gas spirals, inflation surges and most of us start to look at rises in our annual fuel bills, it’s sometimes easy to forget that such increases can also hit broadband ISPs and network operators too. Suffice to say, if the situation continues, then consumers could be in for a wider array of bill rises.

At present many operators tend to sign long-term energy agreements, which based on initial feedback typically seem to run for periods of 2-5 years, and these are often agreed with primary suppliers that are much more stable than the smaller fry in the consumer space. As a result, most providers currently have some protection against the current market turbulence in energy prices.

NOTE: Energy (gas/electric) charges for telecoms networks may differ from consumer charges, so the two are not always directly comparable.

However, the longer the current trauma continues, the higher the likelihood of network operators being hit in the same sort of way as ordinary consumers. Inevitably, some network operators, ISPs and data centres have already been caught out, since there will always be a few companies that end up with a contract renewal that just so happens to fall at the worst possible moment for energy prices (i.e. right now).

The Industry Impact

ISPreview.co.uk has been collecting off-the-record feedback from across the telecoms sector and, needless to say, the pain is starting to be felt by some. One communications provider said just two weeks ago, before the prices surged again, that their averaged contract prices were 8p/kwh higher than last year on a one-year term, and 5p/kwh on a three-year term.

Fast-forward to today, and other comms providers are now reporting an increase of c.10-11p/kwh on a three-year term (i.e. prices have effectively doubled or more). Some companies are even considering floating on mildly higher out of contract rates for a while, rather than lock themselves in for a longer term when the prices are this high.

Whatever the approach taken, it’s a tricky balancing act, particularly with some energy providers allegedly indicating to comms providers that prices may continue to rise until “at least” November, while the problem of disruptively high rates itself may well run into the new year.

The fact that this can impact operators at every stage of the digital connectivity chain – from infrastructure providers, to data centres / exchanges and retail ISPs – means that by the time the link gets to consumers (and businesses) there is a collective impact. Naturally, recent suggestions in the media that big energy companies could also be at risk of collapse, probably won’t do much to help any of this.

On top of all this, it’s worth noting that access to petrol and diesel is another ‘energy issue’ that can disrupt related services, such as engineering operations like service upgrades, repairs and new fibre builds.

The Consumer Impact

Thankfully, most broadband connections use very little energy (excluding your home kit) and so the individual impact upon consumer bills, which for some may not be felt until further down the road, probably won’t break the bank. But the initial collective impact for an individual operator can still be significant, especially if it comes as a sharp, sudden shock to see how much energy costs have risen between the previous and new contract.

However, just to make matters worse, inflation is still on a rapidly upward trajectory, which means that any future consumer price hikes linked to inflation could get ugly (we warned of this before). The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.0% in the 12 months to August 2021. According to the Office of National Statistics (ONS), the increase of 0.9 percentage points is the largest increase ever recorded in the CPIH National Statistic 12-month inflation rate series, which began in January 2006.

Suffice to say, consumers will need to keep a close eye on how their broadband provider and mobile operator handles future price rises (we expect that some may need to adjust their terms again). Initially, providers like BT, EE, Plusnet, Three UK, Vodafone, O2 and TalkTalk, which have in the last year or so adopted the CPI + X% (X often equals 3-4% on top of the CPI rate) approach to annual price hikes, may produce the biggest hikes.

Some consumers could then opt to mitigate any heavy hikes by switching ISP or contacting their existing provider to try haggling for a lower price when a hike hits (Retentions – Tips for Cutting Your Broadband Bill), although your mileage may vary. Just remember, most of the big providers will usually hike their prices at least once a year.

Leave a Comment
22 Responses
  1. John H says:

    Starlink is going to look a lot more expensive with its much higher energy consumption by the subscriber than other solutions.

    1. Luke Up says:

      How does that work then? Does it take a lot of power to transmit up to the satellite? And or does it take more power to descramble or whatever the signal? How much more power does a satellite link uses over ADSL, FTTC, FTTP etc?

    2. John H says:

      Info posted here shows it uses 100W.

      https://www.ispreview.co.uk/index.php/2021/03/electricity-costs-of-starlinks-uk-leo-broadband-satellite-service.html

      However, in terms of power consumption, Tim says Starlink’s system tends to use about 89 Watts when idle and then bumps up to around 110w during normal usage (average of c.100w). But he did also see the occasional peak, reaching at most 175.7w (the Power Supply Unit is rated for 180w). “The motors on the dish seem to only be used during initial alignment, then it’s all beam forming,” said Tim.

  2. - says:

    I think honestly that this is a blip, once we get the subsea cable repaired etc we should be in a better place.

    However that being said, this is entirely accurate – although consumers are complaining about a 10% or 20% rise large businesses who are buying basically at a wholesale rate + Distribution + Levys are currently seeing 80-95% price increase. Haven a look at day ahead per MWH rates in say March vs now.. three times higher.

    1. Joe says:

      Its not the subsea bit that failed but the fire damage at the interconnector site in Sellindge. And 1GW is out for 6 months. In a winter that was already a very low on spare margins. (we’ve just halved the UKs derated margin!)

      You may see some easing as Nordstream comes online near Xmas as that will lower gas prices. But other than a v mild windy winter high prices won’t return closer to normal till spring. Even then margins for 22/23 were forecast to be tight. Its not until 24 than big new tranches of wind come online which will exert strong downward pressure.

    2. - says:

      Thanks – really interesting..

      I only really interact with this at a removed economic level, so I had perhaps ignorantly assumed that with substantially lower wholesale electricity prices in mainland europe (in general) that running the interconnector would allow us to import capacity at that rate bringing our blended rate down.

      Really interesting, we are literally seeing double the cost (or slightly more) per MWH vs a few months ago. That actually has a massive effect on for example the cost of co-lo in a datacentre or the cost of providing a cloud server where wholesale electricity cost makes up a substantial portion.

    3. Joe says:

      Importing power from Europe does bring the rate down (its almost always cheaper – with the new Norway IC v substantially so) but its still a small % of the total and price is set by the power filling the last GWs of demand which is gas. (So for example atm we have ~42% Wind, 15% solar, 14.5 Nuclear, 14.5% gas 7% biomass and 5% imports (Fra/Belg & Norway) & still a price of ~£120/MWh

      Gas is the single largest source of power over the year and its 4x the price. Everything follows that.

      Datacentres are usually pretty well hedged for price so should be ok with this surge.

  3. Dassa says:

    The interconnector issue is a relatively minor one in terms of electricity pricing. The big issue with electricity prices is that the wind didn’t blow for most of September and gas prices have risen sharply. As a result there was a lot of gas generation and consequently the increase in gas price fed through to electricity prices very quickly.

    In terms of supply security, I have no real concerns. There are several mothballed CCGT plants (particularly the Calon energy ones) that could be brought back into use if security was expected to be a serious problem.

    In terms of pricing, at the moment you would expect electricity prices to have a strong relationship with gas prices and additional wind capacity won’t fix that. Additional wind capacity effectively means additional gas capacity to support it when the wind doesn’t blow.

    It should be noted that OCGTs appear to be competitive in the market now, probably due to the low capital cost and the fact that you can’t recover the higher capital costs of a CCGT plant if you are only running it when the wind isn’t blowing. As a consequence, the carbon footprint of gas is slowly getting worse as we add more wind.

    Someone is going to have to decide what provides the nation with electricity when the wind doesn’t blow. It has been gas by default but perhaps that might not be the best idea?

    1. - says:

      Thank you, that was a fascinating read. In your view how does imported electricity (with standby Gas/Coal fired stations) and Domestic nuclear feed into this (i.e Hinkley Point C coming online)?

      It certainly fees like a mix of wind,solar,hydro,imported electricity and nuclear should be the answer.

    2. Dassa says:

      This is drifting well away from ISPs but overall it is complex:
      – We have an interconnector with France which basically allows Europe to sell us spare electricity, this is made up largely of French nuclear and excess wind power when it is windy but it also allows us to import electricity from dirtier fuels.
      – We have an interconnector to Norway (very recently opened) which in theory allows us to tap into their hydro capacity and allows them to take any excess wind energy we have to conserve their hydro capacity. Note that Norway has been doing the same thing with most of northern Europe for years so there is competition for that hydro resource.
      – We also have an interconnector to Holland and one to Belgium. I suspect that those are used very similarly to the French interconnector although I suspect they don’t carry much French nuclear.
      – In the short term, our only option when it isn’t windy is gas and thus electricity and gas prices will be linked for some time.
      – In the longer term, Hinckley Point C will compensate for the loss of existing nuclear generation (through old age) so will have no net effect.
      – Solar will gradually grow to the point where it provides more and more daytime energy. It can already provide up to 20% of our needs.
      – Hydro won’t grow much further in the UK unless some pretty big environmental objections are overcome. No-one is going to accept flooding a few valleys in Wales, Scotland or the Lake District.
      – Wind will grow, probably to the point where wind, solar and nuclear (plus existing bits of hydro and interconnectors) could run the country at times during the day.
      – Who knows what will keep us warm when its dark, cold and not windy (which can happen for a month at a time) in the longer term. One answer would be nuclear, but if you go down that path then wind generation might effectively be a stepping stone to point where you don’t actually need it.
      – There is a concept that we’ll use excess wind energy to make hydrogen which we’ll then burn to provide power when it isn’t windy. I have my doubts as to whether that would ever be built at any scale, especially as (other) people are saying that natural gas will be replaced by hydrogen generated by excess wind energy for heating homes. That is an awful lot of excess wind energy to find!
      – Energy storage is unlikely to have a material impact on the mix in supply (building enough to do that would be hugely expensive) but will change the options available to grid operators to mange short term (i.e. next hour) issues.

    3. Joe says:

      Wrt solar the potential is barely scratched atm. The UK record is instantaneous 34% of power 30 May last year. A lot more could be done on mandating for new domestic and commercial buildings + major refurbishments. (Add in thermal or other storage and thats significant capacity)

      The national grid is expecting to see periods of carbon free power by 2025. (Wind/solar and nuclear) Though wind/S could manage at times once sufficient inertia is available and transmission constraints solved (A lot of work going on this decade on that side.) We saw this last year on May 23rd when there was ~100% W/S/N power generation but the grid lacked inertia so was forced to bring on biomass/gas so the grid was only low 80s%.

      The costs on nuclear are so awful and timelines so long that commercial entities won’t touch it without mass subsidy. Naturally the UK gov has suddenly decided this is a good thing! Expect much waffle about SMRs.

      Hydrogens production inefficiency is so poor that using it for homes is a non starter. Its mainly being promoted by fossil interests who want to keep their industry alive. Green H2 might just have a role in last resort power but the economics still look bad. H2s main decarbonisation role is industrial.

      The amounts of wind forecast are already vast.(120-150GW range to Netzero) See FES21 for the plausible mixes. The UK will be a mostly wind grid (and de minimus fossil in the early 2030s)

      Storage costs of all types are falling (battery packs from $1100->137$ in a decade). FES21 again sees a decent role for storage. Both commercial and domestic (EVs with bidirectional charging for example)

      Add in far more interconnection as well.

    4. Dassa says:

      I’m aware of FES21 but maybe the excess of pretty graphics left me somewhat jaded.

      I don’t believe we have the money for some of the more ambitious scenarios in that document – domestic consumption reduced to a quarter of what we have now would need everyone to go and glue their hands to the M25 (at least they could turn the heating off at home!).

      Similarly, claims of 90% efficiency for LED lighting suggests that the document hasn’t been checked by someone who knows how reality works.

      I am pretty ambivalent about wind, but for me the key thing is that everything has to work when the wind isn’t blowing. Having vast amounts of wind power either means that the majority of it is being used for interruptible (for a month!) uses or you have equally vast amounts of some alternative form of generation to cope when the wind isn’t blowing – I look forward to hearing what that is…

    5. Moss says:

      What about mini nuclear factories around in and out the uk to provide energy when needed?

  4. adslmax says:

    If the price rise around 15% next 10 years – sadly I think peoples will give up their home broadband to save their money by switched to mobile only

    1. Spurple says:

      If you work from home, you would sacrifice the mobile data before you sacrifice home broadband.

  5. Grimreaper says:

    My annual energy bill has gone from £910 a year to £1680 thanks to both of my energy companies going bust and fixed price deals being turned into variable ones charged at record breaking prices, plus the spot price of gas is still going up by an average of 8% every day. Any thought of paying these stupid prices like £35 – £50 a month for what is the luxury of FTTP has just been put back by years. In fact I’m now looking at reverting to a legacy ADSL package!. We could all very well be paying £350 a month for energy by next Spring, so it’s likely to impact consumer decisions as well as infrastructure running costs.

    1. Spurple says:

      Aren’t winds already picking up? And what makes you think price rises won’t affect ADSL if energy costs are rising?

    2. NE555 says:

      ADSL prices are pretty much the same as FTTC from all providers now, because ​BT/Openreach want to persuade ISPs to give up ADSL and LLU.

      As for the cost of home broadband going up by say £3 per month – that’s pretty irrelevant given how much the cost of all other household bills will rise.

      I’d suggest people will start thinking about their Netflix or Spotify or AppleTV or DisneyPlus subscriptions, before they cut themselves off from the Internet completely.

    3. Joe says:

      Wind speeds have been ‘up’ for some time now (its presently ~46% (renewables ~53% gas ~23%) but thats relatively minor part of the price. The market is set by gas as thats almost off the chart atm.

      For context the ave price of gas 2010-20 was <50p/therm. Last year gas was as low as 9p/therm. 19Aug gas was ~100p/therm. By Sept 30th its was 251p/therm.

      All the big BB/Data providers should be hedged fine so not a big price impact there.

      ADSL/FTTC/FTTP prices get ever closer so little to gain there.

    4. W says:

      Sorry but what does all hedged fine mean?

      We are all on contracts.. 3yr,5yr etc. If you are mid contract is true prices are stable but if you are coming up for contract renewal now…

      These energy companies are making a loss on our contracts by huge margins at the moment even if by the time we renew prices are stable do you seriously not expect us to be paying a premium anyway.

    5. Joe says:

      Yes if you have you contract renewal now you are in more of a problem. But most won’t and even those that will may have only part of their supply up for renewable (depending on size)

      This price spike is likely to blow through next year. So there is a window of potential issues. While the base rates will not drop to pre spike its not looking like it will be enough to put a big hit to ISPs. Atm at least.

  6. Roger_Gooner says:

    In the longer term I expect operators to have lower power requirements as FTTP is rolled out. For example, Virgin Media won’t need all those ampliifiers when its HFC plant is decommissioned and I’d think that Openreach will benefit when it can get rid of those DSLAM cabinets.

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