With Ofgem revealing this morning that it would increase the energy price cap to £3,549 per year for dual fuel from 1 October, the news has been met with much debate across the energy sector.
Cornwall Insight, who predicted the price cap would be set at the £3,554 mark earlier this week, believes the rise was “inevitable”.
“The rise in the Default Tariff Cap (price cap) was unfortunately inevitable, as UK bills continue to be the victim of an unstable and unpredictable global market,” said Craig Lowrey, senior consultant at Cornwall Insight.
“While there is still some time until the January and April caps are set, the energy crisis is showing no sign of abating. Throughout the energy crisis, the government and Ofgem have remained committed to the cap, and in its ability to shield consumers from a volatile energy market,” Lowrey said.
“However, the cap was never meant to be a permanent solution, it was created for a different energy market than the one we face today and has not protected consumers from what will be incredible hardship this winter. We urge, as we have done previously, for the cap to be reviewed and mechanisms for protecting the most vulnerable, such as social tariffs, to be considered as viable alternatives.”
Amid criticism that it was asleep at the wheel, the government opted to present opportunities for customers to obtain support against the threat of soaring energy bills this winter. “Direct support will continue to reach people’s pockets in the weeks and months ahead, targeted at those who need it most like low-incomes households, pensioners and those with disabilities,” a government spokesperson said.
“As part of our £37 billion package of help for households, one in four of all UK households will see £1,200 extra support, provided in instalments across the year, and everyone will receive a £400 discount on their energy bills over winter.
“The civil service is also making the appropriate preparations in order to ensure that any additional support or commitments on cost of living can be delivered as quickly as possible when the new Prime Minister is in place.”
The rise in the energy price cap has come about amid a rising global wholesale gas price that has affected businesses and consumers worldwide. Ofgem’s price cap is aimed at supporting businesses to ensure they do not go bust whilst also providing consumers with attainable energy bills, the regulator said.
In fact, analysis conducted by the Energy and Climate Intelligence Unit (ECIU) shows that the rising price of gas has substantially contributed to the rise in the energy price cap, adding a cost of at least £2,300 per home with accounts for around 95% of the total price increase.
“The government doesn’t have a serious plan for dealing with the gas crisis and without one, as the IFS has pointed out, the £15bn bills bailout for this winter may have to grow and be repeated next winter,” said Jess Ralston, senior analyst at ECIU.
“The elephant in the room is the cost of gas and unless households are helped to use less by conserving heat with insulation, bills will remain high. The ECO insulation scheme has knocked £600 a year off the bills of millions of households even before this latest hike, but funding for it remains low. Shifting policy costs on to general taxation will provide only a little relief and more UK gas won’t drop the price as we’re part of an international market.”
Dan Alchin, Energy UK’s director of regulation, agrees with this having said: “The rise is driven by the cost of buying gas on the wholesale market, which has been at record levels for about a year now – with prices this week ten times what they were before the crisis.
“These costs are out of the control of energy retail suppliers who need to recoup them, otherwise we risk more going out of business in addition to the 30 that have done so since last August – causing huge cost and disruption to customers.”
Alchin also called on the government to provide further intervention and support for vulnerable households this winter: “The government must step in urgently and put in place further support for this winter and with energy costs likely to remain high for the foreseeable future, look at ways to keep bills down next year as well – as we outlined in our letter to the Chancellor last week.”
This is similar to Luke Murphy, associate director for energy and climate at the IPPR think tank, who believes the government should clearly set out support options amid the ongoing crisis.
“Allowing this announcement to go ahead without setting out what support government will put in place means that millions pf people will fear the consequences of this hike for them and their families,” Murphy said.
“The government must act urgently to provide emergency support this winter, by freezing energy prices or providing significant support to households through direct payments, with additional targeted support for those on the lowest incomes.”
So Energy stated the energy price cap rise was inevitable. However, the government must double this winter’s Energy Bill Support Scheme to £800 and to quadruple the Warm Homes Discount for the most vulnerable to £600.
“Even though we’ve known for some time roughly what October’s price cap level would be, today’s announcement confirming the level at £3,549 is a sobering body blow for customers. Putin’s war is driving these price rises, and this requires a wartime response from the government,” said Simon Oscroft, co-founder of So Energy.
“We are calling on the government to double this winter’s Energy Bill Support Scheme to £800 and to quadruple the Warm Homes Discount for the most vulnerable to £600. This is the simplest, most targeted and crucially the quickest way to get support directly to customers before this price hike takes effect.”
So Energy also cast their eyes towards the 2023 energy price cap predictions having stated it could get worse before it gets better.
“The latest price projections into 2023 make for even worse reading, showing bills could increase to over £6,000 next year. This will require further government intervention, such as the proposed Tariff Deficit Scheme which we support,” Oscroft concluded.
