In response to yesterday’s announcement, the energy sector has united in a call for stronger support for UK households struggling to pay their energy bills.
Yesterday (27 February) Ofgem announced the April energy price cap at £3,280. Despite a £1,051 reduction from the previous cap UK households will see little benefit due to the proposed £500 increase in the Energy Price Guarantee (EPG). The EPG is the capped price which households will have to pay for their energy.
In it’s final price cap forecast, which was only £14 lower than the cap confirmed by the energy regulator, Cornwall Insight predicted that raising the EPG to £3,000 will cause annual consumer bills to surge by at least £500 (20%) despite the reduced price cap.
This will only increase upon the planned termination of the Government’s Energy Bills Support Scheme at the end of March.
Let households benefit from lower wholesale prices
The overarching response from the energy sector was to allow households to feel the immediate benefit of the lower wholesale prices which allowed for a lower price cap, rather than waiting until later this year.
“Customers will be shielded from paying the full amount announced today by Ofgem as the Government’s Energy Price Guarantee (EPG) will continue to cap energy bills until March 2024,” said Emma Pinchbeck, Energy UK’s chief executive.
“However, from April 2023 the EPG is expected to rise to £3,000/year – £500 higher than it is now – which combined with the end of the separate monthly rebate payments, will mean most people’s bills will rise significantly.”
Director of regulation at Uswitch, Richard Neudegg said: “This significant fall in the Ofgem price cap should mark a turning point for the energy market, and could be the last quarter in which the cap is priced above the current Energy Price Guarantee level.”
“Yet, with the Energy Price Guarantee still set to rise by 20% to £3,000 a year for average consumption and the end of the £400 Energy Bills Support Scheme, households will be facing higher bills from April.”
“Wholesale prices have dropped more than 50% since December 2022 but consumers have yet to feel the benefit.”
A number of suggestions were made by companies throughout the sector as to how best to support households against ever-higher energy bills.
Keep the EPG at the current level
Several companies have called for the government to act on the surplus granted by the significantly lower price cap and keep the EPG at £2,500.
“Falling wholesale costs means the EPG has cost the Government a lot less than had been anticipated so we, alongside many charities and consumer groups, are urging them to use this surplus to hold the EPG at £2,500 – and to announce that quickly so it can be incorporated in customer bills in time for April,” continued Pinchbeck.
In concurrence with Pinchbeck, Dame Clare Moriarty, chief executive of Citizens Advice, said: “Without further support from the government, this April will spell catastrophe for millions of households.”
“Unless the government changes course on planned reductions to the level of support for households under the Energy Price Guarantee, we estimate the number of people unable to afford their bills will double, from one in 10 to one in five.”
“The government must keep the EPG at its current level of £2,500. Recent drops in wholesale prices mean they have the headroom to do this. The alternative is millions more people unable to keep their house warm and keep the lights on.”
Paul Nowak, TUC general secretary said that rising energy bills mean that the government had a duty to cancel April’s increase.
“With the cost of wholesale gas plummeting ministers have no excuse for not stepping in.”
“Families across Britain are at breaking point. Prices are skyrocketing, but wages are failing to keep pace with the cost of living.”
Reform the energy market
Addressing the discrepancy between surging energy bill prices and oil and gas profits, Nowak continued:
“It is shameful that household budgets are being hammered while oil and gas firms rake in billions in excess profits.”
“We need a much higher windfall tax. But we also need proper reform of our broken energy market.”
“Energy retail companies should be brought back into public ownership to help bring down bills and fund home insulation.”
“Much-needed investment is being siphoned off into shareholders’ pockets.”
Neudegg also encouraged market reform, by urgently re-introducing fixed energy price options for customers to provide stability following 18 months of tumultuous prices.
“Now is the time for fixed deals to return to the market to get the benefits of falling wholesale prices to consumers as soon as possible. After 18 months of sky-high energy bills, households need stability as well as choice in who their energy provider is and what they pay,” explained Neudegg.
“A return to fixed deals will bring the benefits of competition back to the market, giving consumers the chance to vote with their feet and choose a supplier with the best deal and customer service, as well as locking in more price certainty.”
“Current intervention, including the market stabilisation charge implemented by Ofgem, is actively dissuading suppliers from offering competitive deals that consumers desperately need.”
Help households reduce their energy consumption
Helping reduce consumers’ reliance on energy by improving insulation and decarbonising heating systems was also strongly encouraged by the sector.
“This will be a significant hit on households already pressured by the cost-of-living crisis which could have been reduced by a comprehensive retrofit programme, supported by skilled installers,” said Cara Jenkinson, cities manager at climate solutions charity, Ashden.
“There is no time to lose in terms of launching a comprehensive retrofit programme now, accompanied by a high priority mission to boost retrofit skills, to reduce our dependence on gas, and further price disruptions.”
Also responding to the April price cap Jess Ralston, energy analyst at the Energy and Climate Intelligence Unit added: “The old energy system where gas dictates the price of both heating and electricity has left households paying much higher bills because of volatile international gas prices.”
“Will the Government now boost investment in insulation and electric heat pumps which would help to reduce our gas dependence and improve energy security? All eyes are on the Chancellor and Spring Statement.”
The Spring Budget will be covered by Current± upon its release on 15 March 2023.
