The Treasury’s £9.1 billion support package to lessen the impact of the £693 price cap hike announced by Ofgem has been described industry commentators as a “sticking plaster” that fails to address to underlying causes of the current crisis.
Chancellor of the exchequer Rishi Sunak unveiled plans this morning (3 February) to provide rebates of up to £350 to relieve pressure on households facing a sharp rise in the cost of living after Ofgem revealed the price cap on default tariffs will jump by 54% in April to £1,971 per year. The price cap on pre-payment tariffs will increase by £708 to £2,017 per year.
Electricity customers will receive a £200 rebate from their supplier in October that will be recovered from energy bills over the following five years, with the government covering the costs in the meantime, whilst households in England living in properties within council tax bands A to D will receive a £150 rebate from their local authority in April that will not need to be repaid.
Utility Week presents a round-up of the reaction from the energy sector:
Emma Pinchbeck, chief executive, Energy UK
“A steep rise in the price cap had been widely predicted and we know a £700 increase will be extremely worrying news for many people.
“The record international wholesale gas price rises seen since the last price cap has led to 27 suppliers exiting the market since August – with those remaining losing up to hundreds of pounds per customer. As Ofgem has said, suppliers need to be able to recoup these costs but we do not expect customers to shoulder the burden from this exceptional and unprecedented period.
“Suppliers will continue to do all they can to help and support customers, especially the most vulnerable, but a rise of this scale needs the government to step in.
“So we very much welcome the support for customers announced by the chancellor today, but with no sign of wholesale prices falling and bills likely to remain high through the autumn, our concern for millions of customers, as well as the stability of the retail sector, remains.”
Dame Clare Moriarty, chief executive, Citizens Advice
“Today’s price cap rise means we’ll all see our energy bills rocket in April. Worryingly, even before these price hikes kick in, we’re seeing record numbers of people needing crisis support like food vouchers.
“This is a strange, complicated and untargeted package of measures. It provides some relief for all households come April, but for people on low incomes who need it most there are far easier ways for the government to deliver support. If the government is serious about helping families facing the desperate choice between heating and eating it should use the benefits system.
“Energy rebates are a buy now pay later solution which only provide temporary relief later this year. And linking financial assistance to council tax will result in a complicated lottery that means support is not targeted at people who really need it.”
Sepi Golzari-Munro, deputy director, Energy and Climate Intelligence Unit
“High global gas prices are expected for another few years at least. The chancellor’s proposal, while giving some short-term relief, provides little more than a sticking plaster on the open wound left by the UK’s gas dependency.
“With many predicting high gas prices for years to come and the price cap rising again in October, the importance to vulnerable households of insulation schemes such as ECO, which is due for a boost in April, cannot be exaggerated. The question now is, will it be enough?”
Adam Scorer, chief executive, National Energy Action
“These energy crisis measures are woefully inadequate and will leave those on the lowest incomes and in the least efficient homes in deep peril.
“Government had an exam question: How to protect the most vulnerable from a devastating rise in the cost of energy? While their plans are not without merit, they fail this test by turning away from targeted measures to help the poorest energy consumers.
“We needed deep, targeted support for the most vulnerable. We have shallow, broad measures for all. That simply does not work.
“The depth of support is not proportionate to the increases. A household paying by prepayment will still have a £500 increase when you take into account rises from October 2021 and April 2022. The rebates on bills and council tax are not sufficiently targeted, too small and too complex.
“We expect the government will have no choice but to return to the issue of spiralling fuel poverty and another price rise later this year. By then they’ll be playing catch-up and great harm will already have been done. We need a more coherent plan we are going to ensure the poorest can stay warm this winter and next.”
Peter Smith, director of policy and advocacy, National Energy Action
“After months of deliberation and a huge amount of anxiety building in terms of the public, the government has rushed out a set of proposals that neither the industry themselves feel particularly excited about or are credible in terms of the scale of the challenge at hand.
“Questions will be asked about certainly the transparency around that process and the lack of involvement of consumer groups has been very evident throughout. I think the final package highlights the deficiency there.”
Darren Jones, chair, Business, Energy and Industrial Strategy Committee
“The chancellor’s package is welcome, but it amounts to short-term, immediate help rather than a first step to tackling the longer-term problems in our energy market.
“The chancellor has, in effect, announced an energy mortgage for each household. There is the distinct prospect that Ofgem could return in six months to announce a further increase in the energy price cap but the chancellor’s announcement did not set out a plan for the future.
“The government must deal with the costs of heating our homes in the long term, not just for the next six months. As the BEIS Committee has said in our decarbonising heat in homes report, we need better home insulation, reduced cost gas boiler replacements and help for bill payers and heat sector workers with the costs and opportunities of the transition.
“At this time when many households are struggling to heat their homes, gas producers are raking in massive profits. The case for a windfall tax is an issue which the BEIS Committee will be looking to explore in our current inquiry on energy pricing and the future of the energy market.”
Greg Jackson, chief executive and founder, Octopus Energy Group
“This is a huge increase in the price cap and we are glad that the government is helping reduce and smooth the impact. We speak to 30,000 customers a day and know first-hand that many people are struggling to pay their bills this winter. It’s going to get worse before it gets better, so we will continue to work with the government and do whatever we can to help customers until the crisis is over.”
Michael Grubb, professor of energy and climate change, University College London
“The gas crisis is driven by international markets; domestic production is almost irrelevant to the prices in the UK. But around half the cost increase that consumers face is from the knock-on impact on electricity bills. That’s because at present, gas plants set the price for all even though they account for less than half our generation.
“Beyond the short-term sticking plaster, we need more renewables to reduce our dependence on gas, and reform the system so that consumers can engage more directly with low-cost renewable energy generation. Consumers now are paying the price of the short-termism of the Treasury, particularly in blocking measures to improve household energy efficiency, and for the obstacles put in the way of onshore wind energy in particular.”
Paul Massara, ex-chief executive of NPower
“It is positive that the government are acting to help households with the increase in energy bills and I would especially welcome the increased funding to the Warm Home Discount, aimed at helping those most vulnerable.
“However, even with this help, which in part will only see the increased deferred, we will still see bills going up by £500. The longer term solution for energy bills, climate change and the geopolitical risks from Russia, is greater investments in energy efficiency programs.”
Nigel Hawkins, utilities analyst, Hardman and Co.
“This package, thrown together in haste, raises many questions. In particular, there is no guarantee that the surge in gas prices is a blip – markedly higher gas prices may endure for several years. To that extent, seeking to recover £40 per year from millions of households may, in many cases, prove costly. The widely derided student loan scheme, with its vast number of non-repayments, highlights the problem of administering long-term state loans’.
Dr Nina Skorupska, chief executive, Association for Renewable Energy and Clean Technology (REA)
“The government’s package of measures will bring an element of respite to both households and energy suppliers and covers some of the measures we have been calling for.
“However, these policies alone will not cover the expected energy bill increases and don’t address a fundamental reality – as long as households are at the mercy of volatile fossil fuel prices, we will continue to see people struggle to pay the bills.
“That is why the government must address the scale of the problem by providing catalysts to improve the insulation of homes and to drive up the installation of domestic renewables and clean technology.
“If the government does not accelerate the energy transition, the cost-of-living crisis will get more severe, and harder and more expensive to fix.”
Dan McGrail, chief executive, RenewableUK
“The measures set out by the chancellor to provide support for hard-pressed families struggling to cope with the eye-watering hike in international gas prices are very welcome, but the UK needs to phase out fossil fuels as fast as possible to provide long-term energy security and certainty for consumers.
“Figures published today by Ofgem show that green levies are falling, so anyone attempting to blame renewables and net zero is seriously misinformed. Let’s be clear – this is a crisis caused by the soaring cost of gas.
“In the last three months of 2021, wind and solar power was so cheap that they actually paid back nearly £160 million to consumers, reducing energy bills. The escape route from volatile and uncontrollable gas prices couldn’t be clearer – investing in our green future secures low-cost reliable power as well as getting the UK to net zero as fast as possible”.
Mike Foster, chief executive, Energy and Utilities Alliance
“Now we know the impact of the global energy crisis upon the average consumer, a price cap increase of £693 to £1971 a year. Millions more households will now be thrown into fuel poverty, through no fault of their own and that unenviable choice, between heating and eating will become the reality for more in our communities.
“It would be churlish to ignore the government’s response, any help is better than none. But using council tax to rebate bill increases seems a very blunt instrument, which fails to take into account actual household incomes but does reflect 1991 house values. I fear the distribution of this rebate will not be fair and many winners will not be the low paid.
“The proposed loan to energy companies to keep bills £200 lower now, but to be paid back later, is a stunt designed to appear to help. It is a heat now, pay later scheme that simply delays the pain, not reduce it.
“But the fundamental root cause of the problem has not been addressed in today’s announcement. How does the UK shift away from global fossil fuel prices? We now need a firm commitment from the government to wean us off natural gas and onto hydrogen, which we can produce ourselves, and convert our world-class gas network to run on hydrogen. That way, Putin will not hold us hostage, with his fingers turning the gas taps off, jacking up prices and forcing UK households to choose between heating and eating.”
Ian Preston, director of household energy, CSE
“While there is much that UK government can do to for low-income households – and we acknowledge that the chancellor has announced a support package today – there are actions Ofgem can take, in line with its statutory remit and its consumer vulnerability strategy, to prioritise the needs of the most vulnerable consumers.
“Firstly, it could require energy suppliers to proactively contact customers who are self-disconnecting from their energy supply. Today’s price rises will result in more people switching their heating off. People are frightened of getting into debt. Someone we support on our advice line contacted us this morning to say they wouldn’t be able to put the heating on anymore. This is going to be the case for millions of people across the country.
“We’ve calculated that this energy price increase each month is about the same as a low income household would spend on groceries in a week. So to pay for the increase is essentially the same as asking them to go without food for a week every month.
“We need to literally insulate people from the impact of future energy price increases. If we insulate our homes and buildings well, they’ll become more energy efficient – there’s a range of measures available for different budgets and we can support people with finding grants.
“Energy suppliers know how much their customers are spending and have up-to-the-minute information for those on smart meters. This should alert them to vulnerable households where less energy than expected is being used.
“Ofgem should also publish all the commitments suppliers have made – for example what they are doing about customers who self-disconnect. This would allow them to be held accountable for their promises.”
Lily Frencham, chief executive, Association for Decentralised Energy
“The way to protect households from energy price rises in the long-term is to remove our exposure to volatile gas markets through heat decarbonisation and energy efficiency.
“The government has stepped in today with sticking plasters for the next few months. However, it is not enough – either for the immediate crisis that could well continue into next year or for the long-term. Now, it needs to learn from this crisis to go harder and faster towards making people’s homes affordable, comfortable and net zero.”
Andy Prendergast, national secretary, GMB
“The measures announced by the chancellor are better than nothing – but they are a drop in the cost-of-living crisis ocean.
“Ultimately, they are as sticking plaster on the gaping wound caused by the lack of any coherent, long term energy strategy.
“We’ve dismantled our gas storage capacity, forced a regressive green poll tax on poorly paid workers, build our wind turbines on the other side of the world instead of here at home and left bill-payers to fork-out for failed energy companies.
“Energy is a basic need, not a luxury and until we have a grown-up debate on the how we meet and pay for the UK’s energy needs, tens of millions will continue to suffer.”
Mike Thornton, chief executive, Energy Saving Trust
“We know the additional increase to the energy price cap, alongside higher living costs, will be extremely worrying for people across Britain. With the number of households who find themselves in fuel poverty expected to rise, while the Government has taken steps today it must now go further to provide support to those most in need.
“As well as the need for immediate action and short-term support, the current crisis emphasises the importance of improving the energy efficiency of the UK’s housing stock in the long-term. Alongside this, we need to invest significantly in renewable energy – including low carbon heating. Energy efficiency and more renewables are the best ways to protect everybody against volatile gas prices and rising bills in the long-term.
“Tackling the current energy crisis must also go hand in hand with meeting net zero ambitions. Reducing our reliance on fossil fuels will minimise our exposure to the volatility of the global energy market and shape a greener and more affordable energy future. Alongside many other mission-led organisations, we’re asking for committed government investment and clear action plans to scale up home insulation and renewable energy so we can be less reliant on gas in the future.”
Andy Regan, mission manager, Sustainable Future Team at Nesta
“For many households across Britain, today’s announcement of an increase to the energy price cap will be a cause for fear and despair. Fuel poverty campaigners have long talked about the choice between heating or eating, but the cost of both has gone up significantly in recent months.
“We need to be clear that the UK’s energy price crisis is a global gas crisis, driven by geopolitics, and bottlenecks across the energy system which have all pushed up wholesale gas prices. The UK is more heavily exposed to these than most other countries in Europe, so the solution is to accelerate our move away from that dependency.
“These solutions begin in our homes. We use more gas for heating than for generating electricity. So the best solutions are switching to low carbon heating, insulating homes, and continuing to generate more renewable energy.
“The UK government should retain its commitment to the Energy Company Obligation, push ahead with its plans to stimulate the heat pump market, and shouldn’t blink on its plans to shift levies on energy bills from electricity to gas – even in the midst of this crisis.
Jo Allen, utilities customer experience expert, Pegasystems
“Whilst the Treasury intervention is good, the fact that it’s a discount now, which will need to be paid back later is kicking the problem down the road. The energy providers and Ofgem need to do more to support the customers and themselves today.
“Energy providers should be thinking about how to efficiently manage support from the government’s new energy bills discount plan and expansion of the Warm Home discount scheme. They must ensure they do everything they can to help customers in the coming months, especially those vulnerable or facing the difficult decision between heat or eat.
“Too many manual and broken processes can mean these schemes are expensive to run and don’t get help to people fast enough.”
“Considering a new model for administrating the Warm Home discount scheme is also important, i.e. a single body looking after the scheme. Currently government schemes’ administration tends to be fragmented across multiple utility companies, which are already struggling with operational costs. Plus, in some cases, such organisations have been swamped with new customers who they’ve had to take on from failed energy providers.”