On her second day in office, Prime Minister Liz Truss unveiled a range of measures to help mitigate the impact of the energy crisis.
Core to this is a freeze of the price cap for two years, along with measures to help businesses and boost energy security in the long run.
“Decades of short-term thinking on energy has failed to focus enough on securing supply – with Russia’s war in Ukraine exposing the flaws in our energy security and driving bills higher. I’m ending this once and for all,” Prime Minister Liz Truss said.
“I’m acting immediately so people and businesses are supported over the next two years, with a new Energy Price Guarantee, and tackling the root cause of the issues by boosting domestic energy supply.
“Extraordinary challenges call for extraordinary measures, ensuring that the United Kingdom is never in this situation again.”
The energy sector has broadly welcomed the short term measures, which are hoped to help avoid the unprecedented levels of fuel poverty predicted over the coming winter. But other elements have been less welcome, with criticism of the end of the moratorium on fracking and disappointment at the lack of focus on energy efficiency.
So how has the energy sector reacted?
Price cap freeze: a welcome short term measure
The headline change has been the introduction of the Price Cap Guarantee, which freezes the price cap at £2,500 from October for two years for households
“Just over 12 months ago the average annual bill was just £1,271. Even with this price freeze the average bill has doubled in a year. Last year 4.5 million UK households were fuel poor, now we predict that it will be 6.7 million – far better than the 8.9 million without support, but still more needs to be done. In particular, measures need to work for households in Northern Ireland who are outside the GB energy market and its price cap,” said Adam Scorer, chief executive of fuel poverty charity National Energy Action.
“The new Government must not forget that the most vulnerable need targeted support. Those who use more energy in their homes because of medical conditions, those who are elderly and those on very low incomes need extra help so they don’t have to ration their usage, putting their physical and mental health at risk. Those on prepayment meters must not be forgotten either. They would benefit from a lower rate or additional relief from huge standing charges.”
Exactly how the government will fund this intervention, which is expected to cost around £100 billion, has yet to be unveiled. The newly appointed Chancellor Kwasi Kwarteng is expected to release a financial breakdown of this and other measures later this month.
Along with the domestic price cap freeze, support for businesses was announced yesterday as well. This includes their energy costs being capped at the same price per kWh as households are set to pay under the Energy Price Guarantee. This cap will be set for six months, but will be reviewed after three.
The government will also introduce a new six-month scheme to support businesses who are seeing their energy bills surge. This follows calls for “urgent action” from a host of parties as businesses reported projected increases in energy costs of more than 500% as they are not protected by the price cap.
“Crucial for alleviating wider cost-of-living pressures, as well as managing the costs of doing business, and supporting people across society, is the planned broad support for business, charities, and public sector organisations,” said professor Karen Turner, director of the University of Strathclyde’s Centre for Energy Policy.
“Hopefully, this will reduce not only the risk of business collapse and job losses but limit the need to pass on increasing costs through the prices of all goods and services. However, that non-household support is to become more targeted in six months reinforces the need to address the source of energy price pressure, making crucial the ‘plan’ part of the intervention – to reform regulation, crucially across the wholesale part of the energy market, and to secure future energy supply at sustainable and affordable prices.”
Energy independence and renewables
Beyond these short term measures, Truss highlighted the importance of expanding renewables and nuclear in the future to increase energy independence. Indeed, she announced a new target for the country to be a net exporter of energy by 2040.
“This country has enormous potential to become energy independent by fully developing our world-class renewable resources, upgrading our electricity infrastructure, and creating innovative new carbon capture, hydrogen and pumped storage technologies – boosting UK energy security and helping ensure we are never in this position again,” said SSE chief executive, Alistair Phillips-Davies.
“And I was pleased to see the Prime Minister talk about the need to accelerate deployment of these technologies, building on the UK’s global leadership in offshore wind.”
Similarly, RenewableUK’s CEO Dan McGrail welcomed the target along with the review of net zero included within the announcement.
“Liz Truss is right to highlight our enormous potential not only to boost the UK’s energy security, but also to become a net exporter of energy by 2040. Harnessing our massive resources of renewables and green hydrogen potential will be key to achieving this,” he said.
“Although the Prime Minister’s announcements set out various measures, we’re confident that accelerating renewables will prove to be the only scalable solution which delivers meaningful and sustainable savings for billpayers and helps UK be a net energy exporter”.
The announcement contained little detail of exactly how the country is to increase its renewables however, with many in the sector highlighting that until this is available, the impact of yesterday’s announcement is limited.
The introduction of a Contracts for Difference (CfD) scheme for existing generators is to be introduced. This follows the energy sector recently throwing its weight behind such a suggestion, with the likes of Energy UK, RenewableUK and Solar Energy UK announcing their support.
“The move to extend the use of the Contracts for Difference scheme to harness low cost renewable generation is a positive step which Regen and others in the industry have supported, but the important details of how this will be done are yet to be set out,” said Regen in a statement.
Fraught feeling on fracking
The most controversial aspect of the announcement was the end to the moratorium on fracking in Britain. The process of hydraulic fracturing to access natural gas reserves will now be allowed in areas where there is public support.
Truss has introduced the measure along with a new licensing round for the North Sea, to increase Britain’s production of natural gas in the name of energy security.
However, given the energy crisis has been driven by high wholesale gas prices in the international gas market – which has seen oil and gas producers in the North Sea make record high profits on the back of these prices – the move has drawn criticism.