Suppliers which have gone out of business as a result of the recent escalation in gas costs cannot blame the price cap because they should have been adequately hedged, the energy minister has argued.
Appearing at the House of Lords Industry and Regulators Committee on Tuesday (30 November), Greg Hands said: “The energy price cap has been part of the market for some time. I don’t think any of the suppliers could claim that the energy price cap came as something unexpected. It has been part of the established market for some time.
“I would expect energy suppliers to be properly hedged.
“A well hedged company has clearly been in a much better position to ride out the big increases in global gas prices.
“Companies should have seen what the rules of the market were going into the rise in prices. Many companies have been able to ride out rise in prices.”
Hands also told the committee, which was taking evidence as part of its ongoing inquiry into Ofgem and net zero, that he does not see a pressing need for legislation to make achieving net zero Ofgem’s primary statutory duty.
He said: “Ofgem’s current duty to consumers encompasses net zero. On the face of it, I don’t see the necessity to change the statutory definition of Ofgem’s role for it to be able to take account of net zero.
“Overall, the duty to have heed to net zero is sufficient.”
“It is extremely important that consumers have confidence that the market is well regulated: I would be nervous about changing that fundamentally,” Hands said, adding that he does not see evidence that Ofgem is being forced into making policy decisions or trade-offs that are beyond its remit.
“I don’t recognise that being an issue,” he added.
Jonathan Brearley, chief executive of Ofgem, said: “As a board, we incorporate an understanding of net zero in all the work we do. We are behaving as if we have those goals. We can see benefits in clarifying that but we have to be careful that you don’t distort trade-offs you have to make along the way.
“We see this as part of our function already.
“Within our current duty, we see net zero as fundamental.”
Brearley also said that the recent surge in gas prices could provide an additional spur to put more reliance on low-carbon renewable electricity.
“If you look at the pace and scale of change, we have seen with gas prices, it is going to fundamentally change the economics of net zero,” he stated.
“The argument that those net zero technologies are not only good for tackling climate change but they are by far the more affordable options is going to gain traction. Given that we will see substantial price rises in April, we want us all to reflect and understand that the net zero transition is looking increasingly cost effective.”
Joanna Whittington, director general for energy and security at the Department for Business, Energy and Industrial Strategy, denied that it views switching as a metric of whether the energy market is functioning well.
She said: “We don’t generally see switching as a metric of success in its own right, it’s a metric of engagement but that can be both positive and negative.”
Whittington said “no single metric” reflects the government’s objectives for the retail market, including switching rates.