The measures announced by the government to ease the impact of high energy costs on households will leave suppliers and generators “unscathed”, according to a new report from S&P Global Ratings.
The ratings agency said the £9.1 billion support package unveiled by chancellor Rishi Sunak alongside Ofgem’s announcement of a price cap hike points to a “change in the government’s stance”.
As well as a £150 rebate for households in England in council tax bands A to D, the measures include a £200 credit on energy bills, to be repaid in annual instalments of £40 over the next five years. This political intervention, the report said, leaves both suppliers and generators “unscathed”.
It further explained: “We consider these measures to be rather neutral for suppliers’ financial positions, although we don’t yet know how the bill rebate mechanism will be implemented.
“However, we believe they indicate that political intervention will be geared toward easing the burden of energy costs on households, rather than shifting it to the suppliers.
“Notably, this move points to a change in the government’s stance, following adverse intervention in the sector over the past few years.”
Speaking to Utility Week, S&P credit analyst Julien Bernu said the latest measures contrast with the price cap, which has had “a significant adverse impact on profits and margins of large energy suppliers since its introduction.”
He also highlighted the government’s decision in December to pause development on its plans for automatic switching as part of a “refresh” of its energy retail strategy.
S&P said it expects energy costs to remain a “highly sensitive topic” in 2022 given the significant political, economic, and social implications.
“First and foremost, the support package (£350 for the majority of energy customers) will cover only about half of the total increase (£693) of end users’ energy bills. The high cost of living is further exacerbated by record inflation, a recent hike in interest rates, and increase in the UK annual tax bill from April,” it added.
The report said unless energy prices and inflationary pressure subside, the government will face a “tough decision” that will test its ability to provide additional support to households: “This would inevitably reignite the debate regarding the government’s obligation to address the rising cost of living for the UK population.
“We note that the current remedy packages do not affect power generators, which are partially benefitting from the currently high power prices (taking into account that the 2022 volumes are almost fully hedged).
“Based on measures implemented in France, Italy, and Spain, where governments took steps to claw back profits from power producers to decrease the pressure on fiscal budgets, we cannot exclude an impact on UK power generation companies in the coming months should prices remain elevated.”