20 May: Households Continue To Face Affordability Challenges
Domestic energy bills for typical households could fall by over £100 a year from July, according to analyst Cornwall Insight, writes Brean Horne.
The energy price cap, which represents the annual cost of gas and electricity for a household with average consumption on a dual-fuel tariff and paying by direct debit or using a prepayment meter, is set each quarter by the regulator, Ofgem. It fell by 12% on 1 April to £1,690 a year thanks to lower wholesale prices, and Cornwall Insight believes it will fall a further 7% for the third quarter of the year to £1,574.37.
Energy supplier EDF is forecasting the Q3 cap could fall to £1,568, again for a household with average consumption levels (2,700 kWh of electricity/11,500 kWh of gas per year).
If the predictions are correct, this drop would represent a 25% decrease compared to last summer, with prices around £500 lower than July 2023.
Energy prices are at their lowest level since February 2022, when Russia’s invasion of Ukraine sparked a global energy crisis. However, even with July’s predicted fall, they remain higher than pre-pandemic norms.
Dr Craig Lowrey at Cornwall Insight said: “We must recognise lower prices don’t erase all the problems. The very fact we are still seeing bill levels which are hundreds of pounds above pre-crisis levels underscores the ongoing challenges faced by households.
“Although a reduction in the price cap could save households money, the affordability of energy bills remains a concern.”
Ofgem is reviewing the way the price cap operates. This includes whether standing charges, the fixed daily amount that you pay on your bill regardless of how much energy you use, should be changed.
Mr Lowrey said: “While the cap is certainly not the ticket back to long-term energy bill affordability, Ofgem’s review could pave the way for fairer, more efficient energy bills. However, given the breadth of reforms being considered by the regulator, it is worth remembering that such changes will inevitably lead to trade-offs.
“For example, reducing standing charges, while seemingly beneficial for low-energy users, could lead to higher unit prices. This could disproportionately impact those in less energy-efficient homes or with greater energy needs, some of whom could be vulnerable. Finding the right balance is crucial.
“The path forward for energy pricing remains uncertain, and with stakeholders advocating for reforms – coupled with a general election on the horizon – energy bills are likely to be an area of continued debate and transformation in the months ahead.”
Switching to a fixed-rate energy deal could help households lock in a cheaper rate and save money. Shopping around and comparing deals can help reveal the best option.
But you’ll need to watch out for extra charges, such as early exit fees, that could affect the overall savings made if you switch to a fixed-term deal.
Currently, the cheapest fixed rate deal for a typical dual fuel customer who pays via direct debit is just under £1,620 per year, putting it £45 higher than the forecast Q3 cap (based on data from Uswitch for a typical dual fuel customer paying by direct debit).
The deal – EDF Essentials 1Yr Jun25 – levies a £25 per fuel exit fee, charged if you choose to switch to a different deal before the 12-month contract is up. However, under Ofgem’s rules, exit fees don’t apply if you switch within 49 days of your deal coming to an end.
Signing up for this tariff means you agree to have a smart meter installed if you do not already have one.
For more money-saving tips, read our guide on how to cut your energy bills.
1 May: Falling Wholesale Prices Feed Through To Consumers
Our energy partner, uSwitch, is offering a new 12-month fixed-rate tariff from EDF which is priced at £110 below the regulator Ofgem’s energy price cap for 1 April – 30 June 2024.
It’s the cheapest energy-only fixed-rate tariff available on the switching site since October 2021.
The price cap stands at £1,690 a year for a household using a typical amount of gas and electricity (2,700 kWh of electricity/11,500 kWh of gas per year) and paying by direct debit, putting the EDF equivalent cost at £1,580.
Note, however, that the cap does not limit the size of your bill. It controls how much suppliers can charge for each unit of energy consumed, as well as associated standing charges. Actual bills are always determined by consumption.
The new deal – EDF Essentials 1yr May25 – comes with a £25 per fuel exit fee. This will be levied if you decide to switch again within the 12-month term (although Ofgem rules say such fees cannot be levied within 42 days of the deal coming to an end).
uSwitch points out that analyst Cornwall Insight is predicting that the price cap could fall by around 8% from £1,690 to £1,560 for the three months from July to September 2024, which may in turn trigger the release of cheaper deals than those currently available.
The new EDF plan requires paperless billing and, when bought through uSwitch, is not available to existing EDF customers or to those with prepayment or pay-as-you-go meters (only standard and Economy 7 meters can access the deal).
Forecasters are optimistic about prices in the near term because of falling wholesale prices, particularly for natural gas, which is used in the UK to power electricity generation.
10 April: Steep Rise In Legal Action Over Unpaid Bills
Citizens Advice has issued a warning about increasing levels of court action being taken against people who are behind on their energy bills.
The number of customers the charity is helping with county court judgments (CCJs) issued on behalf of energy firms is increasing. Between 2020 and 2022 Citizens Advice saw a 30% increase in the number of people affected, but last year that number nearly doubled, jumping from 179 in 2022 to 349 in 2023.
The charity is concerned this could force bill payers further into debt, since CCJs can leave people paying higher rates of interest on borrowing.
Madison Stefanuik, a debt caseworker at Citizens Advice, said: “People are coming to us about this problem more and more often. It’s usually people who are struggling to make ends meet, often trying to prioritise rent and council tax. As a result, they’ve fallen behind on energy bills and have been hit with a CCJ.
“Since rules were tightened on prepayment meters, we’ve noticed some energy suppliers are increasingly using CCJs and sending in bailiffs to force customers to pay their debts.
“What’s troubling is that energy debts aren’t regulated by the Consumer Credit Act, meaning suppliers can go to the High Court quite quickly after a CCJ has been granted – at which point bailiffs can get involved. This is when people usually come to us for help, because they’ve got aggressive bailiffs knocking at the door and don’t know what to do.”
Dame Clare Moriarty, Citizens Advice chief executive, said: “Getting a CCJ can be devastating. It can ruin people’s finances and plunge them further into debt. That’s why Ofgem must introduce new permanent protections to halt this worrying trend as soon as possible.”
The latest analysis from Ofgem shows energy debt rose by £2.8 million a day in the last six months of 2023, reaching a record figure of £3.1 billion.
Citizens Advice is calling for a long-term plan to tackle spiralling energy debt, including new protections for people who are in debt to their supplier. Currently, there are no rules on when it is acceptable for suppliers to use CCJs.
4 April: Vulnerable Customers To Receive Compensation
Energy suppliers are expecting to pay over £540,000 in compensation to 2,500 ‘vulnerable’ customers who were wrongly moved onto prepayment meters, according to data from the industry watchdog Ofgem, writes Brean Horne.
The regulator ordered providers to review cases where prepayment meters were involuntarily fitted between 1 January 2022 and 31 January 2023 to identify customers eligible for compensation because of their vulnerable status, as defined by Ofgem.
So far, suppliers have paid £342,450 in compensation to 1,502 customers, with £200,000 to be paid to a further 1,000. Compensation levels for each customer vary depending on their circumstances and the harm they experienced.
Involuntary fitting of prepayment meters is allowed where the customer is heavily in debt with their credit meter account and shows no signs of paying, unless the household is deemed vulnerable under Ofgem’s definition (see below).
Last year a report in The Times revealed that customers were being forced to accept a prepayment meter despite their being classed as vulnerable. As a result, involuntary installation was paused by Ofgem while an investigation took place. It restarted earlier this year, with only a limited number of suppliers allowed to carry it out.
Currently, these are E.ON, EDF, Octopus, Scottish Power, Tru Energy, Utilita and Utility Warehouse.
The compensation figures for British Gas are not included because the energy firm – Britain’s biggest, with seven million customers – is being investigated separately by Ofgem.
Energy suppliers are identifying affected customers by looking at the accounts of people with known vulnerabilities, or where complaints have been made. They have also contacted all prepayment meter customers to check whether it is still a suitable way for them to pay.
A spokesperson for Ofgem said: “We are working closely with suppliers to make sure they identify all eligible consumers and pay appropriate levels of compensation promptly.”
The news follows the publication of Ofgem’s ‘multiyear’ strategy – ‘Protect, Build, Change, Deliver’ – which sets out how it intends to deliver “clean, secure and fairly-priced” energy.
The strategy is designed to help customers deal with the financial impact of the 2022 energy crisis, which saw debt levels reach record highs. Ofgem also aims to achieve a net zero energy system and transition from gas to renewable energy sources as part of its plans.
Claiming compensation
You may be eligible for compensation if your energy company wrongfully installed a prepayment meter or switched you from a smart meter to prepayment meter mode.
If you think you have been affected, contact your energy supplier to explain your circumstances and make a complaint. Your supplier will investigate your case and your complaint may be referred to the Energy Ombudsman and Extra Help Unit if you need extra support.
What are the prepayment meter rules?
Suppliers must be approved by Ofgem and follow strict rules before they can install a prepayment meter without a customer’s permission.
This includes making at least 10 attempts to contact the customer about their energy bill arrears and conducting a welfare visit before the prepayment meter is installed.
Under current rules, suppliers must protect vulnerable customers and are not allowed to force-fit prepayment meters in households with:
- residents over 75 (unless they have adequate support in the house)
- children under the age of two
- residents with severe health issues, terminal illnesses or conditions that could worsen in cold temperatures (such as chronic bronchitis, emphysema and sickle cell disease)
- residents needing a continuous energy supply for other health reasons (such as dependence on powered medical equipment).
The list of approved suppliers is subject to change but customers can check whether a firm is authorised to force-fit a prepayment meter on Ofgem’s website.
If you are worried about affording your energy bills, it’s important to contact your supplier as soon as possible. Our guide on how to get help with your energy bills also shares more support available to assist with keeping on top of your energy bills.
1 April: 12% Cap Cut Thanks To Falling Wholesale Prices
Today, 1 April 2024, sees the energy market’s domestic bill price cap fall by 12.3%, taking it from £1,928 to £1,690. This is the amount an average household can expect to pay in a year if they have a dual fuel gas and electricity tariff and pay by direct debit or have a prepayment meter.
Households using average amounts of energy should see their bills fall by around £20 a month. However, the start of April also sees hefty increases in council tax, water bills, broadband and mobile phone tariffs, and vehicle excise duty for most cars, reducing the net benefit in many instances.
The energy cap, which re-sets every three months based on historic wholesale prices monitored by Ofgem, the regulator, does not limit the size of actual bills. It is a cap on how much suppliers can charge for units of gas and electricity consumed and associated standing charges.
Typical consumption rates for an average household – 11,500 kWh per year of gas and 2,700 kWh per year of electricity – are used to work out the cap amount.
Most people are on energy tariffs that reflect the cap’s limits on the price per unit of energy and on standing charges, but there are a small number of cheaper deals where the price is fixed, usually for 12 months. You can run a quick comparison to see what is available here.
These fixed-rate tariffs usually come with an exit fee if you wish to move tariff before the end of the fixed period. These start at around £50 per fuel but can be much higher, so are worth considering if you think there’s a possibility you might want to switch in the near future if the cap falls further (note that exit fees cannot be charged if you are within 42 days of the tariff end date).
Market analyst Cornwall Insight predicts that the price cap will fall again from £1,690 to £1,560 on 1 July before rising to £1,631 on 1 October. Its estimate for the first quarter of 2025 is £1,634, but it is generally agreed that predictions further into the future are inherently less reliable because of the vulnerability of wholesale prices to world events and weather-driven demand.
In the winter of 2021-22, the price cap was below £1,300, so even with today’s, it remains at an elevated level in historical terms. The regulator, Ofgem, has opened a consultation on the future of pricing regulation, having concluded that the current arrangement will not work efficiently as new tariffs emerge with variable pricing structures based on supply and demand (see story below).
26 March: Ofgem Consults On Future Of Price Cap
Market regulator Ofgem is consulting on the future of its price cap, which limits how much suppliers can charge customers for each unit of gas and electricity they use, as well as for associated standing charges.
The cap is set quarterly. At present it stands at £1,928 but from 1 April 2024 it will fall by 12.3% to £1,690. This is the amount an average household can expect to pay in a year if they have a dual fuel gas and electricity tariff and pay by direct debit.
Actual bills are always determined by consumption – the cap does not limit how much you will pay. It is determined by movements in wholesale energy prices in the three months before it comes into force.
Ofgem says the cap, which was introduced in 2019, has helped protect customers from the worst effects of the spike in energy prices that followed the Russian invasion of Ukraine. But critics point out that the government stepped in to limit typical bills to £2,500 a year when the cap soared above £3,000 in October 2022 and £4,200 in January 2023.
The consultation, which runs until 6 May, will explore ways in which the cap might be developed “so customers remain protected as the energy market evolves to a smarter, more flexible system.”
This refers to the introduction of ‘time of use’ tariffs that offer electricity at different prices during the day, allowing consumers to use appliances and devices when general levels of demand are low and unit prices are cheaper.
Tariffs designed to cater for the increasing number of households charging their electric cars overnight are also starting to appear.
Ofgem said: “Energy markets are changing as increasing numbers of consumers change their energy consumption and begin using electric vehicles, heat pumps and solar panels.
“Our increasingly renewables-dominated electricity sector will also reward consumers for shifting the time of their electricity consumption, which will in turn reduce costs for everyone.
“As customer diversity grows, and more households adopt time-of-use tariffs, it could become harder to retain a universal price cap that is suitable for everyone. [We are] considering how the price cap, and energy regulation as a whole, needs to adjust to ensure customers are protected, they continue to pay a fair price for their energy, and they get to realise all the benefits of net zero.”
As part of consultation discussion paper, Ofgem has set out a range of options for the future of the price cap, including:
- introducing a more dynamic cap with time-of-use dependent unit rates to encourage consumer flexibility
- introducing a targeted cap which could be based on a variety of factors such as vulnerability
- introducing more flexible, market-based price protections such as setting a limit between a supplier’s default tariff and tariffs available in the market, capping the margin suppliers are able to make, or replacing the cap with a ban on acquisition-only tariffs.
Acquisition-only tariffs are deals that are only available to new customers. There is currently a temporary ban on such offers, recently extended for 12 months, which was introduced to prevent suppliers from subsidising such deals with profits from existing customers.
Ofgem is also currently reviewing over 30,000 responses to its call for input on standing charges, which closed in January.
Responses to the price cap consultation can be sent to [email protected] by Monday 6 May 2024.
23 February: Regulator Working On Plans To Tackle Debt
Ofgem, the energy market regulator, is reducing its price cap on the cost of gas and electricity by over 12% from 1 April, a move which will knock £238 a year off typical bills, writes Kevin Pratt.
The cap limits what suppliers can charge for each unit of power they supply and for associated standing charges. For an average household with a ‘dual fuel’ gas and electricity tariff paying by direct debit, the cap will work out at £1,690 when it is changed at the start of the next quarter.
This is a 12.3% fall on the current cap of £1,928.
The estimated four million customers with prepayment meters will be subject to the same level of cap, as Ofgem is permanently removing the ‘premium’ that has previously been added to their bills.
Those who pay on receipt of their bill by cheque or cash will continue to pay around 5% more for their energy because of the administration costs involved.
The cap, which is updated every quarter, does not limit the size of bills, which are always determined by consumption. The cap’s assumed ‘average consumption’ figures are 11,500 kWh per year of gas and 2,700 kWh per year of electricity.
Ofgem says the change in April will see energy prices reach their lowest level since Russia’s invasion of Ukraine in February 2022, which helped push wholesale prices for gas and electricity to record levels. Domestic prices followed suit, prompting the government to intervene in October of that year with its Energy Price Guarantee.
This capped bills at an average of £2,500 a year. Government payments totalling £400 were then paid to households over the winter of 2022/23 to subsidise bills further.
The price cap was as low as £1,300 as recently as early 2021. Ofgem concedes that customers are struggling with the high cost of bills, pointing to record consumer energy debt levels of £3.1 billion.
The new cap includes a payment of £28 per household, spread across a year, to enable suppliers to write-off unrecoverable debt. Those on prepay meters will not be charged this sum because, due to the nature of their payment method, debt levels are not as chronic as for credit meter customers.
Jonathan Brearley, Ofgem’s chief executive, says the regulator is working on measures to address levels of existing debt: “We’ll be stepping back to look at issues surrounding debt and affordability across the market for struggling consumers, which we’ll be announcing soon.
“These steps highlight the limitations of the current system – we can only move costs around – so we welcome news that the government is opening the conversation on the future of price regulation, seeking views on how standard energy deals can be made more flexible so customers pay less if using electricity when prices are lower.
“But longer term we need to think about what more can be done for those who simply cannot afford to pay their energy bills even as prices fall. As we return to something closer to normality we have an opportunity to reset and reframe the energy market to make sure it’s ready to protect customers if prices rise again.”
Ofgem says it is encouraging the return of switching tariff, where customers move to a more competitive deal, by reducing the time it takes to switch to five days. It is also removing the ‘market stabilisation charge’, which requires companies to pay compensation to a new customer’s previous supplier when they switch.
However, the regulator has extended its ban on ‘acquisition-only’ tariffs by 12 months, a move which is being seen as a potential barrier to competition.
These tariffs enable companies to offer deals exclusively to new, not existing, customers. They were banned because of fears that aggressive pricing during periods of wholesale price uncertainly could put companies’ financial stability at risk if wholesale prices moved against them.
Ofgem says it decided against removing the market stabilisation charge and the ban on acquisition-only tariffs because to do both simultaneously might jeopardise “a phased and responsible return towards normality in the market.”
It says it wants to prevent “a return of the risky behaviours which contributed to the high number of supplier failures during the energy crisis.”
15 December: Ofgem Proposes £16 Price Cap Adjustment To Help Struggling Customers
The energy price cap will incorporate a £16 ‘adjustment’ for the year April 2024 – March 2025 if proposals put forward by the regulator to tackle bad debt are given the green light.
The amount – equivalent to around £1.33 a month for credit meter billpayers – would be used by suppliers to fund a range of consumer support measures introduced by Ofgem.
These took effect yesterday (14 December) having been announced on 18 October (see story below). They include helping customers who are in debt by:
- setting up payment plans
- writing off unmanageable debt on a case-by-case basis
- working out affordable repayment holidays.
Ofgem argues that current levels of debt – estimated at £3 billion – pose a risk to supplier viability. If companies were to fail, additional costs would be heaped on consumers as the market absorbed ‘orphaned’ customers whose supplier had gone bust.
The cost of allocating customers of around 30 failed firms during the energy crisis triggered by the war in Ukraine in February 2021 is reckoned to be around £6 billion pounds.
In Ofgem’s terms, ‘bad debt’ refers to the amount of money owed by customers across the energy market which is unlikely to be repaid. The regulator says the adjustment to the price cap is crucial to ensure that the burden of this increased debt falls as fairly as possible.
It said: “The scale of this debt means that it is crucial that suppliers have sufficient funding to ensure they can meet the strict regulations Ofgem has in place around how they treat customers facing payment difficulties. This adjustment to the price cap will ensure suppliers have the resources to support customers struggling with debt.
“Other sectors already commonly make provisions within their prices for bad debt costs. However, the regulated nature of the energy sector means that Ofgem is able to use the price cap mechanism to ensure these costs are recovered as fairly and efficiently as possible.”
Under Ofgem’s proposals, any extra costs added to the price cap would not be passed onto customers with prepayment meters.
This reflects the fact that many of these customers do not build up the same level of debt as credit customers (who pay in arrears) because prepay meters work on a ‘pay-as-you-use’ basis.The consultation runs until 17 January 2024. Details, including how to respond, can be found on the Ofgem website.
23 November: Ofgem Proposes To Make Market ‘Fairer’
Ofgem, the energy market regulator, is increasing its price cap on domestic customer bills by 5% from 1 January 2024, effective for the first quarter of the year. The latest figures from the Office for National Statistics show inflation running at 4.6% in October.
For an average household paying by direct debit for a dual fuel tariff (gas and electricity from the same supplier), this means a rise of £94 in annual bills from £1,834 to £1,928.
For customers who pay by standard credit on receipt of a bill (cash or cheque), the default cap will increase by £99 from £1,959 to £2,058 for typical dual fuel consumption, while the cap for prepay customers will increased by £99 from £1,861 to £1,960, again for average dual fuel consumption.
Ofgem says the increase “is driven almost entirely by rising costs in the international wholesale energy market due to market instability and global events, particularly the conflict in Ukraine.”
It says it will use “all levers” to ensure costs are spread fairly and customers struggling with bills are supported.
‘Average consumption’ is deemed to be 11,500 kWh per year of gas and 2,700 kWh per year of electricity. Ofgem’s cap does not put a ceiling on bills, which will always be determined by the amount of energy consumed.
The price cap is updated every quarter and limits how much customers can be charged per unit of energy and in standing charges.
Earlier this month, Ofgem opened a consultation into possibly replacing or overhauling standing charges, which are paid regardless of consumption and are seen by many as a disincentive to reducing consumption (this runs until 19 January – see story below for details on how you can submit your views).
Ofgem boss Jonathan Brearley said: “This is a difficult time for many people, and any increase in bills will be worrying. But this rise – around the levels we saw in August – is a result of the wholesale cost of gas and electricity rising, which needs to be reflected in the price that we all pay.
“It is important that customers are supported and we have made clear to suppliers that we expect them to identify and offer help to those who are struggling with bills.
“We are also seeing the return of choice to the market, which is a positive sign and customers could benefit from shopping around with a range of tariffs now available offering the security of a fixed rate or a more flexible deal that tracks below the price cap.
“People should weigh up all the information, seek independent advice from trusted sources and consider what is most important for them whether that’s the lowest price or the security of a fixed deal.”
Today’s announcement confirms plans to remove the ‘prepayment meter premium’ to ensure that prepay customers are charged the same standing charge as direct debit customers.
Previously, customers with prepay meters have been charged more to cover additional costs.
In addition to its proposal to remove the prepay premium permanently once government subsidies are removed in April, Ofgem also wants to overhaul the way the costs of bad debt are shared among standard credit customers (those who pay on receipt of a monthly or quarterly bill for the exact amount of energy used) and those who pay by direct debit.
If adopted in the round, the proposals would save pre-pay customers around £50 a year, reduce standard credit bills by around £45 a year but add around £20 a year for direct debit customers.
Ofgem is keen to hear views on this proposal from all interested parties.
The price cap to take effect in April will be announced in February. Analyst Cornwall Insight is predicting that the main cap will fall back to around £1,850 at that point.
16 November: Bills Tipped To Increase From January
Ofgem, the energy market regulator, wants to know what people think about standing charges, and how they might be replaced, writes Mark Hooson.
Energy customers pay standing charges at a daily rate to their suppliers as part of their bills, regardless of how much gas or electricity they use. Critics say this can act as a disincentive to cutting consumption.
Under the current energy price cap, customers can be charged up to 53 pence per day standing charge for electricity, and 30 pence per day for gas. A new cap will be announced in the coming days to take effect from 1 January 2024.
Analyst Cornwall Insight is predicting that the energy price cap – currently £1,834 ayear for a typical household paying by direct debit – will rise by 5% to £1,931 on 1 January 2024. It says the figure will be £1,853 for the second quarter of the year, £1,824 for Q3 and £1,863 for Q4.
It is forecasting a steep increase in the electricity standing charge from April – up to 61 pence per day from 53 pence – on account of a reform of network charges by Ofgem.
Standing charges can be likened to line rental on a phone contract. Suppliers spend the income they generate on maintaining the infrastructure they use to deliver energy.
Last month, figures from the Office for National Statistics showed around 4 in 10 adults (39%) who pay energy bills said it was ‘very or somewhat difficult’ to afford them.
Today, 16 November, energy regulator Ofgem is asking charities, consumer groups, businesses, suppliers and bill payers for their views on standing charges, and wants ideas for what they might be replaced with.
Any interested parties, including bill payers, can email their views to: [email protected] by Friday 19 January, 2024.
Tim Jarvis, Ofgem’s director for markets, said: “We know that standing charges have provoked a huge amount of debate in recent months and, with wider cost of living pressures meaning customers will continue to struggle with bills, now is the right time to look at this again.”
Standing charges are covered by the energy price cap, which limits how high suppliers can set them, but many still see them as unfair.
Standing charges vary by region, with those on Merseyside and in north Wales paying more than those in the south east of England. Energy customers on pre-pay meters have also historically paid more in standing charges than direct debit bill payers.
Pre-pay customers are currently subsidised through the government’s Energy Price Guarantee, but that support is due to end in March 2024. Ofgem says it is working on a replacement for the scheme.
While most suppliers do levy standing charges, they’re not obliged to. The few that don’t have standing charges, such as Utilita, instead add the cost to the unit prices of the energy they supply.
On the one hand this means customers only pay for what they use, but higher unit costs might disadvantage customers who cannot reduce their energy consumption, such as those with disabilities, the elderly and those dependent on medical equipment.
Mr Jarvis said: “It’s a complex issue and, while an upfront set fee to cover a supplier’s fixed costs works for some, it doesn’t work for others. Equally, spreading the costs differently might help some, but our previous analysis has found it can also penalise some really vulnerable households.
“However we proceed, there is a difficult balance to be struck, which is why it is important that as many people as possible respond to our call for input with their experiences of it, how it affects them and what the alternatives could be.”
Ofgem analysis found that, while moving to a charge related to how much energy customers use would benefit low-income households overall, there could be a significant number of customers made worse off.
Its case studies show that around 1.2 million low-income, high-usage households with electric heating would be worse off by roughly twice as much as those who would benefit.
2 November: UK Remains Vulnerable To Supply Disruption
Energy bills will rise next year, according to analyst Cornwall Insight’s forecasts for the regulator’s price cap, writes Candiece Cyrus.
The cap, which limits the amount suppliers can charge their customers in standing charges and for each unit of gas and electricity they use, is set quarterly by Ofgem, based on wholesale energy prices.
Cornwall Insight predicts the cap, which is adjusted quarterly, will rise in January from its current level of £1,834 a year to £1,923 a year (figures are for an average energy consumption household on a dual fuel tariff paying by direct debit). This is steeper than the rise to £1,898 a year it predicted in September.
The analyst forecasts that the cap will rise to £1,929 a year in April, fall to around £1,880 in July and rise again to around £1,917 in October, keeping it above its current level throughout 2024.
In September, the analyst predicted the cap would fall below its current level from April next year to £1,820, then £1,781 in July before rising to around £1,825 in the fourth quarter.
Cornwall Insight’s new forecasts take into consideration volatility in the market caused by the Israel-Hamas conflict, industrial action at liquid natural gas facilities in Australia and damage to Finland’s Balticconnector gas pipeline.
Similar to Russia’s invasion of Ukraine, these events highlight the potential threat of disruption to the UK’s energy supply, particularly this winter, as temperatures drop.
The National Grid ESO confirmed earlier this year that it would offer the Demand Flexibility Service this winter, offering households and businesses with smart meters the opportunity to earn discounts on their electricity bills by using less energy during peak usage hours.
The service is only used when there is a threat of energy demand outstripping supply.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “The jump in price cap predictions since September has once again highlighted the vulnerability of UK energy prices – and customer bills – to geopolitical events.
“The Russian invasion of Ukraine demonstrated there is a delicate balance in the global energy market which can easily be disrupted by unexpected events, and it looks as though the current situation is repeating that pattern.
“The government needs to take steps to proactively limit the impact that such situations have on the UK’s energy market, and already stretched households, rather than reacting to events as they occur. Stop-gap measures such as social tariffs and one-off payments are helpful, but they are not a long-term solution.
“While the UK will never be entirely protected from global price increases, reducing the country’s reliance on imported energy and prioritising sustainable, domestically sourced energy will help protect the country from international energy shocks, and work to stabilise prices over the next decade.”
1 November: Final Amount Hinges On Success Of Octopus
Energy customers could see almost £3 billion added to their bills to cover the cost of protecting consumers when their suppliers went bust during the energy crisis in 2021, writes Candiece Cyrus.
The House of Commons Public Accounts Committee says around £2.7 billion of taxpayer money was used to cover the cost of transferring customers of 28 failed firms, with the expectation being that this will be recouped through energy bills.
But the Committee says this figure could rise to over £2.9 billion once the cost of rescuing 1.5 million customers of the largest corporate failure, Bulb, are taken into account.
The Bulb case alone cost taxpayers a total of £3.206 billion, and the government is only expected to recoup £2.96 billion from Octopus, which acquired Bulb’s customers – and that figure is dependent on Octopus’s commercial success.
The Committee fears the estimated £246 million shortfall may be borne by bill-payers at a time when household budgets are already stretched by the cost of living crisis.
The Committee added that some households that need support with their bills are not receiving it, saying only 76% of credit vouchers that were issued to households on prepayment plans last winter have been redeemed.
Some energy customers have reported not receiving their vouchers.
Dame Meg Hillier MP, chair of the Committee, said: “Our report is a sobering reminder that we are still living with the fallout of the failure of so many energy suppliers in 2021-22. While the Government and regulators did the right thing in moving swiftly to protect consumers, the uncomfortable truth remains that the recovery of that investment hangs on the commercial success of one company. The public can ill afford such uncertainty, particularly in challenging economic times.”
An Ofgem spokesperson said: “Protecting consumers is our top priority and we worked tirelessly with government to put measures in place to shield customers from the impact of Bulb going out of business. Since then, we have taken a range of firm steps to strengthen the resilience of the sector to reduce the risk of future supplier failures and to limit the impact on consumers if they do fail.
“We can and do decline licence applications by new energy companies where we are not convinced the organisation is resilient enough to weather the volatility of the current energy market. We also require organisations to assess their management control frameworks and provide assurance to Ofgem.”
18 October: Firms Told To Publish Customer Reviews
Energy suppliers are to be required by Ofgem, the market regulator, to contact customers if they miss two monthly payments or one quarterly payment, to check if they are struggling financially and, if so, to offer support. This could be via an affordable payment plan or repayment holiday, writes Candiece Cyrus.
Additionally, suppliers will need to be available via multiple contact methods (such as telephone as well as email or via the website), prioritise enquiries from the vulnerable, such as the elderly and the disabled, and offer free contact methods (such as a freefone number) for those struggling to pay their bills.
They will also be required to publish Citizens Advice customer service ratings on their websites to enable households to make informed decisions when switching. The ratings are updated quarterly and cover factors such as call waiting times, email response times, bill accuracy and complaints data.
The obligations, effective 14 December, are part of a bid by regulator Ofgem to improve standards. They are the outcome of a consultation between Ofgem, customers, suppliers, consumer groups and charities, conducted in May.
Jonathan Brearley, head of Ofgem, said: “With recent global events increasing pressure on gas prices, it’s likely that bills will rise further. This is why the industry needs to do all it can to ensure good customer services and provide help with managing debt, especially for the most vulnerable.
“In the last year, we have seen some good examples of suppliers stepping up their support for customers. However, despite this, the feeling of those on the frontline working with vulnerable households is that more still needs to be done.
“Long wait times to speak to someone on the phone. Letters not replied to. Lack of empathy for people’s personal circumstances. This needs to change and today we are setting out our expectations of suppliers this winter, and how they will be held to account to ensure consumers can get hold of them more easily. In particular for vulnerable customers, we expect more proactivity and a more sympathetic response.”
Energy UK, which represents suppliers, has aligned with Ofgem and Citizens Advice to develop its Winter 2023 Voluntary Debt Commitment, outlining ways the participating 14 suppliers should support customers (see update below).
However, Ofgem also proposed a temporary increase to energy bills from April 2024 to prevent suppliers from going bust, as customer debt hit £2.6 billion in the summer (see update below).
12 October: Bills Would Rise £1.50 A Month For Q2 2024
Households may face a one-off rise in their energy bills of up to £17 a year to prevent suppliers from going bust, writes Candiece Cyrus.
Regulator Ofgem has proposed the move as part of a consultation on ways to protect suppliers from going bust because of customer debt, which reached £2.6 billion this summer, its highest recorded level.
In 2021, around 30 suppliers folded when they were unable to pass rising wholesale costs on to customers quickly enough. The cost of administering the transfer of their customers to other firms and maintaining energy supplies added £82 to every household’s energy bills.
The crisis also prompted Ofgem to move to quarterly rather than six-monthly adjustments to the cap, making it more responsive to wholesale price movements.
The temporary rise would be applied with next April’s price cap and last for three months, adding around £1.50 to the average household’s bills per month (equivalent to £17 a year). The cap dictates the maximum amount suppliers can charge households per unit of energy, and in standing charges.
Such adjustments to the cap are permitted under its terms to allow suppliers to recoup otherwise unrecoverable debt.
The cap fell from £2,074 in the last quarter to its current level for Q4 2023 of £1,834 a year for a typical consumption household, based on Ofgem’s revised lower average usage figures which it will refer to from this month, October. Based on its old figures, the cap would be £1,923 a year for a typical household.
The cap is expected to rise again in January 2024 to £1,898 a year and fall to £1,820 in April, according to analyst Cornwall Insight.
Unaffordable energy bills led to charities, campaigners and MPs sending an open letter to the government last month to urge it to fulfill its pledge to introduce a subsidised ‘social’ tariff for low-income households (see update below).
Tim Jarvis, director general for markets at Ofgem, said: “We know that households across the country are struggling with wider cost of living challenges, including energy, so any decision to add costs to the price cap is not one we take lightly.
“However, the scale of unrecoverable debt and the potential risk of suppliers leaving the market or going bust, which passes on even greater costs to households, means we must look at all the regulatory options available to us.”
Dame Clare Moriarty, chief executive of charity Citizens Advice, said: “Even before winter hits we’re helping more people who can’t keep up with their energy bills than ever before. Worryingly, more households are running up energy debts during the warmer months, with some having to borrow money to try and keep the lights on.
“High energy prices mean millions of people remain at risk of falling behind in the coming months. An increase in the price cap to pay for higher debts will make people’s bills even more unaffordable. Any change must be in the best interest of all consumers.
“For now, the government must provide additional bill support this winter for those at most risk.”
Energy UK, which represents suppliers, has also published the Winter 2023 Voluntary Debt Commitment, developed with Citizens Advice and Ofgem. It sets out the steps 14 participating suppliers will take to provide support such as:
- offering financial support to customers in the form of debt write-off schemes, hardship funds and reducing or waiving standing charges for certain customers
- proactively identify struggling customers and setting up partnerships with appropriate charities to provide additional advice
- training staff to ensure accurate billing
- encouraging customers to contact them to disclose vulnerabilities i.e. being elderly, living with young children
- improving energy efficiency in homes.
The firms involved are British Gas, E, Ecotricity, EDF Energy, E.ON Next, Good Energy, Octopus, Ovo, Rebel Energy, Shell Energy Retail Limited, Scottish Power, So Energy, Utilita and Utility Warehouse.
30 September: Prices Remain Close To Historic Highs
With the energy market price cap set to change on Sunday, an open letter signed by 140 charities, campaigners and MPs is urging the government to fulfill its pledge to protect low-income households against volatile energy prices by introducing a social tariff, writes Candiece Cyrus.
The cap limits the amount suppliers can charge households per unit of gas and electricity and in associated standing charges. Set quarterly, it will fall from £2,074 to £1,834 a year for a typical consumption household from 1 October (see story below).
The new cap level, which is based on Ofgem’s revised lower usage figures in effect from October, and would be £1,923 a year for a typical households, based on its old figures, remains high in historic terms. As recently as March 2022, the cap stood below £1,300.
Poverty campaign group National Energy Action, Age UK and Citizens Advice are among those asking the government to help individuals “whose bills have become so unaffordable that they are having to make the desperate choice nobody should have to make – between heating and eating.”
The letter is also signed by independent MP Angus MacNeil MP, chair of the Energy Security and Net Zero Committee, and Plaid Cymru’s Ben Lake MP, chair of Fuel Poverty and Energy Efficiency All-Party Parliamentary Group.
Separately, Mr MacNeil has criticised energy companies for holding onto what he says is an excessive amount of customer money in the form of credit on their accounts. BBC research revealed that firms effectively held £8bn of their customers’ money in the first quarter of the year.
With regard to a social tariff, the government committed in last year’s Autumn Statement “to develop a new approach to consumer protection in energy markets, which will apply from April 2024 onwards” and to “work with consumer groups and industry to consider the best approach, including options such as social tariffs.”
A social tariff is priced to make it more affordable for those struggling to pay their bills. Water, broadband and phone companies already provide this type of tariff, but one has not yet been introduced for energy customers.
To qualify, an individual usually has to be receiving certain means-tested benefits such as Universal Credit or Pension Credit or have a chronic medical condition that necessitates above-average energy consumption.
The campaign group says UK households behind on their energy bills now owe £2.25 billion, an increase of more than 70% over the past three years.
29 September: Average Annual Bills To Dip Below £2,000
The energy price cap, which determines the amount suppliers can charge households per unit of gas and electricity and in associated standing charges, will fall for a consecutive quarter on Sunday 1 October, writes Candiece Cyrus.
The cap, which is set by market regulator Ofgem every three months to reflect movements in wholesale energy prices, will stand at £1,834 a year until 31 December. This figure is down from £2,074 a year in the three months to October.
It is based on a typical energy consumption household on a dual fuel tariff, paying by direct debit, according to Ofgem’s revised lower average usage figures, which the regulator will refer to from next month. Based on its old figures, the cap would stand at £1,923 a year for a typical household. Ofgem is also lowering the similar price limits that apply to energy customers paying by other methods.
The cap does not limit the size of a household’s bill, which is always determined by how much energy it uses. Bills also vary according to the location of the customer, reflecting the cost of supply in a particular region.
Campaigners have expressed concern that the reduction in the cap itself does not include a cut in the standing charges that are added to all bills. The gas standing charge is increasing by a penny to 30 pence per day on average.
Since these charges are fixed and applied universally, they reduce the benefit of cutting consumption.
According to Ofgem, the price cap change will bring the average dual fuel bill below £2,000 for the first time since April 2022. At that time, it stood at £1,971 a year. The regulator says the cap, at its current level, will save households an average of £151 on the previous quarter.
However, there will be no government support this winter to match the £400 paid in instalments to all households between October 2022 and March 2023, when bills were capped at £2,500. This means consumers will see little benefit from the cap reduction.
Ofgem’s revised average energy usage figures that come into effect on 1 October take into account a reduction in average household energy consumption resulting from people using less energy to save money, and also the long-term impact of improved efficiency of appliances and better building insulation.
The regulator found that the average household now uses 2,700 kWh in electricity, and 11,500 kWh in gas, a year, down from 2,900 kWh and 12,000 kWh respectively.
Based on the new figures, analyst Cornwall Insight forecasts the cap to fall to around £1,898 a year in January next year before falling again to around £1,820 in April. It predicts the cap will fall further to £1,781 in July before rising to around £1,825 in the last quarter of the year.
However, if the current average energy consumption figures were retained, it says the cap would rise by 3.5% to £1,996 a year in January 2024, before falling to £1,912 in April and £1,872 in July before rising to £1,922 a year in October.
As wholesale energy prices have fallen and stabilised, suppliers have begun to start offering fixed deals again. These tariffs, which guarantee energy customers a set rate per unit of energy, usually for 12 months, were largely absent from the open market for over a year because high and volatile prices.
While fixed-rate tariffs protect households against price rises during the term, households can end up paying more than the cap if prices fall. The deals usually come with ‘exit penalties’ designed to deter customers from leaving early. These can be £75 or more per fuel.
The table below shows some of the fixed tariffs currently available from major suppliers.
Fixed-rate tariffs available to new and existing customers
Fixed-rate tariffs available to existing customers only
E.on Next is offering a tariff that tracks the energy price cap. The E.on Next Pledge tariff will always be around £50 less than the cap, which means it will be around £1,870 from October. The price will change every three months to reflect movements in the energy price cap.
Customers must pay £25 per fuel to quit the deal more than 42 days before the end of the term (all fixed-rate tariffs must offer this exit charge-free period as they approach the end of the term). The tariff is available to existing customers who pay by direct debit.
25 September: Action Urged To Curb Fuel Poverty
A cross-party committee of MPs has called for the government, the energy regulator Ofgem and suppliers to do more to support households this winter, writes Candiece Cyrus.
The Energy Security and Net Zero Committee’s Preparing for the Winter report suggests measures the government, Ofgem and suppliers can take to support households in time for the upcoming colder months.
According to the Committee, 6.6 million households are in fuel poverty, which is generally defined as needing to spend 10% or more of their income on energy. This compares to 4.5 million in 2021.
The report recommends the government extends the Warm Home Discount scheme, which provides low-income households and those in or at risk of fuel poverty with a £150 payment during the winter.
Since 2021, energy customers have only qualified for the scheme if they receive certain means-tested benefits, tax credits or pension credit and live in a property with a high energy cost score as determined by the Valuation Office Agency.
The committee suggests extending the scheme to the disabled, elderly, those with chronic medical conditions and those on low incomes who may not otherwise qualify.
It also calls on the government to ensure households that missed out on the government’s Energy Bills Support Scheme payments totalling £400 last winter, due to not receiving vouchers, for example, receive their payments with immediate effect.
Other measures include speeding-up the rollout of smart meters and remodelling the standing charge payment structure to one based on the amount of energy a household uses. Currently, the charge, which covers the cost of a supplier delivering energy to a property among other operational costs, is set as a daily rate.
Smart meters allow households to monitor the energy they use and identify areas where consumption can be reduced. The meters also automatically provide real-time data to suppliers, for more accurate bills.
The report also suggests the government works with suppliers to create a ‘social’ tariff to help those in fuel poverty, and Ofgem and energy suppliers take a more proactive approach to improving industry standards.
This would include providing a priority phone line for consumer organisations and charities seeking support on behalf of their clients.
It says Ofgem should also require that all customers, particularly those in fuel poverty, receive continuity of support from their supplier. This includes guidance with identifying where they qualify for financial support
Angus Brendan MacNeil MP, chair of the Energy Security and Net Zero Committee, said: “The nights are now drawing in and many of our most vulnerable people will be haunted by harrowing memories of the relentless sacrifices they were forced into last year, just to keep their heads above water in the face of exorbitant energy costs.
“While financial support will be vital, there also needs to be a drastic improvement in customer service and the empathy shown by energy companies to those who are going through tough times. If these firms don’t improve, Ofgem must be less backwards in coming forward and give them a good shake to ensure they are working in the best interests of their customers this winter.”
Separately, Prime Minister Rishi Sunak has scrapped his energy efficiency task force six months after establishing it.
The 15-member group’s goal was to reduce total UK energy demand by 15% from 2021 levels by 2030, across domestic and commercial property and industrial processes. Its work included speeding up the installation of insulation in less energy efficient properties and upgrading boilers.
Mr Sunak’s move is part of an announcement last week where he confirmed delaying the phasing out of gas boilers and a pushing-back of the ban of the sale of new petrol and diesel cars from 2030 to 2035.
14 September: GB Insulation Scheme Offers £400 Bill Savings
Energy customers in lower council tax bands living in less energy efficient homes can now apply for government support to improve insulation in their homes and save money on their energy bills, writes Candiece Cyrus.
Previously, such schemes have been available only to those on certain state benefits, but to be eligible for the Great British Insulation Scheme, households only need to:
- live in properties in council tax bands A-D in England or A-E in Scotland and Wales (the scheme does not operate in Northern Ireland)
- have an Energy Performance Certificate (EPC) rating of D or below (EPCs have bands from A to G, with A being the most efficient).
According to the government, 47% of homes across Britain had a certificate rating of D or below in 2022.
Applications can be made via gov.uk. The process involves answering questions on the type of house and any insulation that currently exists, along with EPC details and household income.
This figure will be used to determine whether the household will be asked to make a contribution to the cost of the project. The process asks whether household income is above or below £31,000 per annum, which implies that those with income above this level may be asked to pay up to 10% of the cost.
Anyone who does not have an EPC will be provided with one by their energy supplier, which will commission an approved installer to assess the property and recommend the most appropriate course of action.
Unlike other ‘whole house’ energy efficiency initiatives, the Great British Insulation Scheme only provides for one form of insulation upgrade, such as loft insulation or cavity wall insulation, but not both.
The work will only proceed if the householder agrees to the proposal and any requirement to make a financial contribution.
The government says the 300,000 households that are eligible for the scheme could each save up to £400 a year on their energy bills.
The scheme will run alongside the Energy Company Obligation (ECO) scheme, which provides free home energy efficiency upgrades, including heat pumps, solar panels and insulation to low-income families.
The government has also launched an online eligibility checker for the Home Upgrade Grant. The grant supports homes that are not on the gas grid with energy efficiency upgrades if they have an Energy Perfomance Certificate rating of D to G. According to the government 25,000 homes are eligible.
13 September: Ofgem Extends Forced PrePay Meter Protection
Suppliers will no longer be able to forcibly install prepayment meters in the properties of those owing on their energy bills who are aged over 75 and live with no support, or live with children under the age of two, writes Candiece Cyrus.
The no-install rule currently only applies to energy customers aged 85 and over, and those with severe health issues, including customers who have a terminal illness or a condition that requires a warm home.
The extended rules, announced by regulator Ofgem, take effect from 8 November. They broaden the scope of the voluntary Code of Practice it introduced in April, to which all energy suppliers have agreed to comply.
The Code also requires suppliers to attempt to contact a customer at least 10 times before installing a prepayment meter. Suppliers should also refrain from installing such meters in the homes of those who need a constant energy supply due to their health, and those who are unable to top-up their meter due to mental or physical incapacity.
Supplier representatives should visit a customer to check for vulnerabilities before deciding to install a prepayment meter, and wear an audio or camera device to monitor the process of any vulnerability check or prepayment meter fitting.
If a meter is installed, the supplier should provide £30 in credit to reduce the risk of a customer losing supply due to not having the means to top up. Suppliers must also reassess cases once a customer has repaid the debt they owed.
Currently, no suppliers are carrying out involuntary installations. During the 56-day notice period between now and 8 November, suppliers must identify where they have wrongfully installed involuntary prepayment meters and offer the customers concerned compensation and a non-prepayment payment method, before they can restart involuntary prepayment meter installations.
They will also need to provide Ofgem with data on their involuntary installations.
The Code was Ofgem’s answer to reports of suppliers such as British Gas wrongfully carrying out forced prepayment meter fittings in the homes of ‘vulnerable’ customers, including the elderly, who struggled to pay their energy bills.
From 8 November, if suppliers breach the rules they could face ‘severe penalties’, although Ofgem has not revealed what these are.
Neil Kenward, Ofgem’s director for strategy, said: “Prepayment meters are an important payment method that helps millions of households to manage their energy bills. But they are not suitable for everyone.
“Today’s enhanced rules are there to provide protection from bad practice while ensuring that when needed, and as a matter of last resort, suppliers are using involuntary installations in a fair and responsible way.”
Louise Rubin, head of policy at disability charity, Scope, said: “The new rules outlined today are a welcome improvement but they do not go far enough. There is no guarantee that a disabled household will not face a forced PPM installation this winter.
“We are disappointed that Ofgem did not go further and ban forced installation of meters and remote switching outright for all disabled people.”
1 September: Storm Payments Triple Following Review
Compensation for households and businesses that lose power as a result of severe weather events has been almost tripled, writes Candiece Cyrus.
The maximum compensation energy customers can receive due to severe storms will increase to £2,000, up from £700, under new rules set down by Ofgem, the energy regulator.
It follows its review into how distribution network operators responded to Storm Arwen which, in November 2021, saw around 40,000 consumers across Great Britain without power for three days and almost 4,000 without power for more than a week.
Six major network operators – which include UK Power Networks and National Grid Electricity Distribution – are responsible for linking up homes and businesses to the electricity network.
Ofgem’s changes also include an increase of initial payments from £70 to £80. These must be made if power fails to be restored after 24 hours for a category 1 storm, or after 48 hours for a category 2 storm. Previously, initial payments were only triggered if power was not restored after 48 hours, regardless of storm type.
A storm’s category for these purposes is defined by the impact it has on the electricity network.
Ofgem’s changes also include reducing the length of time customers must wait for additional compensation from 12 to six hours, paying compensation by bank transfer, and a new mechanism which will adjust payments to inflation.
Ofgem says the changes mean more customers will be entitled to higher levels of compensation should they be left for extended periods without power. Network operators that flout the rules could face multi-million-pound fines.
Akshay Kaul, director general of infrastructure at Ofgem said: “It’s unacceptable that thousands of households were left without power in freezing conditions for a prolonged period during Storm Arwen, often with poor information about when their power would be restored.
“Many also found it hard to get the compensation they were entitled to afterwards, and that’s why we’ve put tough new rules in place.”
Mr Kaul added that, while ‘lessons have been learnt’, the frequency of extreme weather events is only set to increase and network services must be resilient.
1 Sept: Octopus Adds 1.4m Customers With Shell Purchase
Octopus Energy has agreed to buy Shell’s household energy businesses in the UK and Germany.
The move will add 1.4 million homes to Octopus’s books, extending its reach to nearly 6.5 million UK households. The deal also includes the adoption of 500,000 broadband customers.
Following regulatory approval, the move is expected to be completed later this year at which time Shell will contact customers about next steps.
Octopus said “there will be a smooth transition and no disruption to customer energy supply”. It added that “customer credit balances are protected and will automatically get transferred to their new account.”
The deal will make Octopus the UK’s second-largest energy supplier behind British Gas, the Centrica-owned firm that has approximately 7.4 million domestic customers.
25 August: No Immediate Prospect Of Return To 2021/22 Levels
The Energy Price Cap, set each quarter by regulator Ofgem, will fall from £2,074 per annum for a typical consumption household paying by direct debit to £1,923 from 1 October.
For households with a prepayment meter, the cap will be £1,949, down from £2,077. The average bill for those paying by other means, such as cheque or cash, will fall to £2,052 from £2,211.
This is the first time since September last year that the main cap will be below £2,000. In March 2022, it stood at £1,277, meaning it will still be almost 50% higher than 18 months ago.
The cap limits how much energy suppliers can charge for each unit of gas and electricity and associated standing charges. It is not a cap on actual bills, which are determined by the amount of energy consumed.
Ofgem sets the cap with reference to wholesale energy prices, which have fallen in recent months as the market has adjusted to the situation resulting from Russia’s invasion of Ukraine. However, market analyst Cornwall Insight has suggested the cap could rise in January if threatened strike action at liquid natural gas facilities in Australia goes ahead and disrupts international supply arrangements.
A number of energy companies have started to offer fixed-term, fixed-rate energy tariffs as prices have fallen. Such tariffs have largely been absent from the open market for a year due to the volatility of prices.
Energy fixing secures you a guaranteed rate per unit of energy, usually for 12 months, and usually at a price close to the prevailing price cap. This protects you if prices rise, but threatens to leave you on a relatively expensive deal if prices fall.
While there is an expectation that prices might tick upwards again at the start of 2024, the hope is that they will fall in the second and third quarters of the year. But this will hinge on economic and geo-political stability being maintained, as well as the severity of the coming winter, which will affect demand.
Customers pondering whether to fix or not should weigh these uncertainties against the benefits of locking in a price and enjoying budgeting certainty for the duration of the fix. Anyone wishing to exit a fixed rate deal during the term will normally face an exit penalty, usually set at £30 per fuel or more.
The continued high price of domestic energy supply is likely to renew calls for the introduction of a social tariff aimed at reducing the bills of those in fuel poverty – which is where a disproportionate amount of household income is swallowed by energy costs.
Energy companies and Ofgem, along with charities and poverty campaigners, have backed the introduction of such a tariff, but the government has declined to give the green light to such a proposal, which would require funding from other bill-payers or from public funds.
Average consumption figures
From October, Ofgem is introducing new figures showing its estimate for average household consumption. These will reflect the fact that households generally are using less energy as they try to save money and benefit from improved efficiency of appliances.
At present, typical annual consumption is defined as 12,000 kWh of gas and 2,900 kWh of electricity. These are the figures used for today’s cap announcement.
From October onwards, Ofgem will use lower figures of 11,500 kWh for gas and 2,700 kWh for electricity. These will be reflected for the first time in the cap that runs from 1 January – 31 March 2024.
19 August: Figures Reflect Reduction In Estimated Average Usage
Market analyst Cornwall Insight has issued its estimates for future energy price caps, set each quarter by Ofgem, the regulator.
The cap, which reflects wholesale energy costs, limits how much energy companies can charge for each unit of gas and electricity used, along with associated standing charges – it is not a cap on actual bills.
The present cap, which came into effect on 1 July, is £2,074 a year for an average consumption household on a dual fuel tariff paying by direct debit.
This is down steeply on previous iterations of the cap and its temporary replacement, the government’s energy price guarantee, and the fall was cited by the Office for National Statistics last Wednesday as a reason for the sharp fall in inflation in July to 6.8% (from 7.9% in June).
Average consumption is defined as using 12,000 kWh of gas and 2,900 kWh of electricity a year. However, from October onwards, Ofgem will use lower figures to reflect the fact that typical household consumption has fallen thanks to a combination of energy saving by consumers trying to cut their bills, and the improvement in efficiency of many household devices.
The new figures will be 11,500 kWh for gas and 2,700 kWh for electricity. To represent this change, Cornwall has issued two sets of figures that show each basis for calculation.
Using current consumption figures, the October cap is estimated to be £1,926. With the lower consumption averages in play, Cornwall says it will be £1,824. Ofgem will confirm the figure on 25 August.
It is important to remember that the new basis of calculation does not in itself signal a lowering of energy prices – it reflects assumptions about how much energy is being consumed by a typical household.
Looking further ahead, Cornwall says the January 2024 cap will then jump significantly (£2,083 old basis, £1,980 new basis), largely because of the threat of strike action at liquid natural gas facilities in Australia, which would threaten to increase wholesale prices.
For Q2 2024 the figures are £2,015/£1,915 and for Q3 they are £1,965/£1,867. It is generally agreed that forecasts are less reliable the further they are in the future, precisely because of geopolitical and economic uncertainties and the impact of the weather on demand.
Commenting on the new estimates, Craig Lowrey at Cornwall Insight said: “While a small decrease in October’s bills is to be welcomed, we once again see energy price forecasts far above pre-crisis levels, underscoring the limitations of the price cap as a tool for supporting households with their energy bills.
“As many, including Ofgem have acknowledged, it is essential that the government explores alternative solutions, such as social tariffs, to ensure stability and affordability for consumers.”
27 July: Average Bills Reported To Be £200 Cheaper In 12 Months
Cornwall Insight, the energy market analyst, is forecasting that the Ofgem price cap will fall further than first predicted when it is revised in October, writes Candiece Cyrus.
The cap is adjusted every quarter to reflect changes in wholesale prices. In early July, Cornwall said the cap, which is currently £2,074 a year for households with typical consumption, would fall to £1,878 for the fourth quarter. It now says it will reach £1,861.
However, the analyst has revised its estimate for the first quarter of next year upwards, from £1,917 to £1,959. Similarly, the estimate for April – June 2024 has risen from £1,888 to £1,917.
Cornwall has also published its first estimate for the third quarter of next year, which shows prices falling to £1,870, over £200 lower than at present.
26 July: Improvements This Winter For Households, Businesses
Regulator Ofgem has set out a list of proposals to improve energy services for households and businesses, writes Candiece Cyrus.
This includes extended supplier opening hours for households and improved complaints handling for business customers.
Ofgem said its proposals would ‘establish expectations’ to ensure all customers experience a ‘consistent and acceptable level of service regardless of the company they are with’.
For households, it proposes energy firms:
- extend their opening hours including evenings and weekends and offer multiple contact methods including email and webchat
- prioritise vulnerable customers who may need immediate help
- provide 24/7 emergency support for households cut off from their energy supply due to problems with their supplier, such as a meter fault
- offer more effective support to financially struggling customers, such as temporary repayment holidays
- publish information on customer service performance to help households make an informed decision when switching, and drive their own performance.
For businesses, the regulator is reviewing the challenges the market presents. It will consult on:
- improving customer service during complaint handling
- improving guidance around ‘deemed contract rates’ for customers who have not agreed contractual terms with a supplier to prevent issues such as overcharging
- extending ‘micro business’ protections to all companies, including making energy firms reveal the amount they pay to energy brokers
- allowing businesses the means to resolve disputes through a redress scheme.
The regulator has also set the level of capital that energy suppliers are required to hold to be able to withstand market shocks after 30 firms collapsed in reaction to rising wholesale prices in 2021/22.
Ofgem is also proposing it is granted the power to instruct suppliers to ringfence a portion of their customer credit balances if it is in the interest of the consumer.
A statutory consultation on domestic consumer standards will close on 23 August 2023. A decision on domestic consumer standards is expected to be published by early October.
Ofgem is proposing to have many of these requirements in place by December 2023 to help protect and support consumers over the winter.
Proposals from the non-domestic review will be published in a statutory consultation in autumn 2023 with any licence changes expected to be implemented in winter 2023/24.
25 July: Fixed Rates Unlikely To Trump SVRs Over 12 Months
Regulator Ofgem is warning households to think before they switch to a fixed-rate tariff following the return of such deals in recent weeks since the revised price cap took effect on 1 July, writes Candiece Cyrus.
Its message coincides with data from analyst Cornwall Insight which reveals that switching to one of the new crop of fixed tariffs is unlikely to deliver savings on energy bills over the next 12 months.
Suppliers have launched tariffs priced close to the £2,074 annual price cap for typical consumption households (see update below) following falls in wholesale energy prices.
Ofgem tweeted today: “Fixed-rate energy tariffs have seen a return to the market but check if they are right for you. Prices are still unpredictable and signing up for a fixed rate now might mean you miss out if prices fall in the future.”
Fixed tariffs allow energy customers to lock into a set price per unit of energy, for typically 12 or 24 months. This can allow them to manage their finances more easily, than those on a standard variable rate (SVR) tariff.
Ofgem’s cap limits how much suppliers can charge customers per unit of energy and in standing charges on an SVR tariff, with updates in line with fluctuating wholesale prices made on a quarterly basis. There is no cap on bills themselves, which always reflect the amount of energy consumed.
Most households are on SVR tariffs after suppliers removed their fixed tariffs from the market when wholesale energy prices began to soar due to Russia’s invasion of Ukraine.
Households on fixed tariffs can pay less than SVR customers if wholesale prices increase during the term of the contract, or pay more if they fall.
Cornwall Insight says those who signed up to the cheapest fixed deal available at the start of this month – Utility Warehouse’s Fixed Saver, priced at £1,974 per year for typical usage – are likely to pay the same as an SVR customer over the next 12 months.
The analyst’s calculations are based on the current cap level (£2,074) and its latest forecasts for the next three quarters, which stand at:
- October – December 2023: £1,878
- January – March 2024: £1,917
- April – June 2024: £1,888.
James Mabey, analyst at Cornwall Insight said: “The return of energy fixing has captured the attention of the country over the past few months, as many households seek to secure lower and more stable energy deals.
“Based on our current forecasts, customers are unlikely to lose out by taking a one-year fixed deal, however, it is doubtful these deals will result in significant savings, if any at all.
“While there are currently limited financial gains to be made from taking up domestic fixed tariffs, they offer a sense of security to consumers amid the recent volatility observed in the energy market. The desire for stable prices among households may increase the number of people who sign-up for the fixed deals.”
18 July: 12-Month Deal Set At £2,100 – £26 Above Price Cap
Energy supplier EDF is offering new and existing customers a 12-month fixed deal on gas and electricity set at £2,100 for the average household with typical energy consumption, writes Candiece Cyrus.
This compares to energy regulator Ofgem’s energy price cap for default variable rate tariffs, which stands at £2,074 a year for the average household with typical energy consumption.
Actual bills, regardless of tariff, are determined by the amount of energy consumed.
EDF’s Essentials Exclusive Jul24 offer is available to households that use a smart meter, or are willing to have one installed on signing up to the tariff. It charges a dual-fuel (gas and electricity) exit fee of £150 should a customer leave the tariff early.
Exit fees are levied up to 42 days before the end of a deal’s term.
EDF’s offer joins a limited number of 12-month fixed deals currently on the market:
Available to new and existing customers:
- British Gas The Fixed One v23: £2,099 a year, £200 dual-fuel exit fee. Available direct to customers from the supplier
- So Energy So Juniper: £2,047 a year, £150 dual-fuel exit fee. Available direct to customers from the supplier
- Utility Warehouse Fixed Saver 2: £1,974 a year, £150 dual-fuel exit fee. Available direct to customers who sign up to two of its other services.
Available to existing customers:
- British Gas Smart Aug24 v9/Smart Fixed v2: £2,072 a year, £200 dual-fuel exit fee. Only available to customers who have, or are willing to have, a smart meter installed
- E.on Next Next Loyalty Fixed v4: £2,006 a year, £150 dual-fuel exit fee. Available to customers on a fixed deal that has ended, or will end, between 26 December 2022 and 18 September 2023
- Octopus Energy Loyal Octopus 12M Fixed June 2023 v1: £2,100 a year, £150 dual-fuel exit fee
- Ovo Energy 1 Year Fixed: £2,099 a year, £150 dual-fuel exit fee
- Shell Energy July 2024 v11: £2,065 a year, £150 dual-fuel exit fee.
The new EDF deal shows signs that the energy market may be stabilising following Russia’s invasion of Ukraine, and the subsequent sanctions on its energy exports, which caused wholesale prices to soar globally.
As a result, suppliers removed their fixed deals from the market. Now, most of the deals on the market are still only available to suppliers’ existing customers.
Most customers are now on standard variable rate tariffs. The energy price cap dictates the maximum amount suppliers can charge customers per unit of energy on this type of tariff, based on wholesale prices. This limit is updated quarterly.
On 1 July it dropped from £3,280 to £2,074 a year for the typical household, but energy customers are still faced with bills above historic levels. The Ofgem cap was around £1,300 as recently as March 2022 and still below £2,000 the following September.
Fixed tariffs lock energy customers into a deal for a stated amount of time – usually 12 or 24 months. They can be particularly useful to households that want to budget with certainty.
However, if wholesale prices fall during the deal term, fixed-rate customers can find themselves paying significantly more per unit of energy than those on a standard rate tariff.
Neither the cap nor fixed deals limit a household’s bills, which are determined by the amount of energy it uses. It is only the rate per unit and the associated standing charges that are capped.
Analyst Cornwall Insight’s latest predictions suggest the Ofgem cap will be updated as follows, for a typical household per year:
- October – December 2023: £1,878
- January – March 2024: £1,917
- April – June 2024: £1,888.
However, wholesale prices remain at risk of geopolitical upheaval, such as further conflict in Ukraine, which explains the increased interest in fixed-rate offers.
13 July: ‘Powerwall’ Will Harness Solar Energy To Charge EVs
Elon Musk, owner of electric car manufacturer Tesla, is reported to be launching an electricity supply firm focused on renewable energy – Tesla Electric – in the UK, writes Candiece Cyrus.
Evidence for the move is a job advert for a Head Of Operations in London on the business-oriented social media platform LinkedIn.
At present, the firm operates in Texas, and advertises itself as helping to “accelerate the transition to sustainable energy.”
Its main tool for doing this is its home electric battery product, Powerwall. It allows households that have solar panels to sell excess electricity back to the grid automatically when wholesale prices are high.
This attracts credits which are added to the household’s energy account, saving it money on future bills. The exact details of how the service will work in the UK are yet to be revealed.
However, UK energy suppliers participating in the government’s Smart Export Guarantee (SEG) scheme allow their customers to sell their electricity back to the grid. Households are placed on an SEG tariff and paid for each unit of energy they feed back. An SEG supplier can be different to the firm that provides the household’s energy.
The amount a household can earn will depend on a range of factors, including their location, their specific tariff and the positioning of their solar panels.
According to the Energy Saving’s Trust Solar Energy calculator, a household located in London can save £298 a year on their bills by using solar energy.
The Powerwall also stores solar energy which can be used during power cuts or when the sun isn’t shining, and offers ‘intuitive’ vehicle charging. This includes detecting when energy is needed indoors or when there’s a power cut and slowing, or stopping the charging of a car accordingly.
The Tesla website says Powerwall also charges an e-vehicle with surplus solar energy if it is plugged in while the sun is shining. The accompanying app allows users to control energy distribution between their property and vehicle. One Powerwall unit costs around £8,900.
Tesla Electric’s expansion comes as the UK aims to ban the sale of new internal combustion engine cars by 2030 and achieve net-zero carbon emission status by 2050.
In its job advert, Tesla Electric says: “Tesla Electric is Tesla’s retail electricity offering, currently available to Tesla product owners in selected markets globally, such as Texas.
“Delivering a seamless, simple customer experience will ensure that small scale residential flexibility can be fully utilised to support the transition of the entire electricity grid to 100% renewables.”
7 July: Consumers To Be Rewarded For Avoiding Peak-Time Usage
Households and businesses with smart meters in England, Scotland and Wales may again be able to earn discounts on their electricity bills by using less energy during peak usage hours this winter, writes Candiece Cyrus.
The opportunity will be available to customers of suppliers that provide the Demand Flexibility Service when there is a threat of energy demand outstripping supply. Participants must use smart meters that can send readings to suppliers every 30 minutes.
Customers without a participating supplier could use an independent company that would draw the necessary data from their meter via an app.
We will update this page with the firms that will be participating this winter once the information is available.
According to National Grid ESO, which ran the service between November 2022 and March 2023, around 1.6 million households and businesses participated, reducing electricity consumption by 3,300 megawatt hours over 22 peak periods.
Participating households were contacted by their suppliers in advance of specified expected peak periods for energy demand – usually late afternoon/early evenings on weekdays – so they could cut back on their electricity usage.
The network said households could save £3 – £6 per kilowatt hour of energy not used during the peak period, though the exact amount was determined by individual suppliers.
It is consulting on the final terms for this winter.
According to the results of a survey of almost 24,000 participants, 62% were satisfied with their experience and 83% would participate again. Most of the respondents (85%) heard about the service through their provider (multiple responses were permitted).
When asked the main motivations for taking part, 76% of survey respondents said the financial benefit, 41% said the challenge, and 37% said their motivation was balancing the grid or ’keeping the lights on’.
When asked the main benefits of taking part, 42% cited satisfaction from managing the challenge, 39% said earning rewards and 38% said it was being part of a national collective effort.
However, certain demographics were underrepresented such as younger age groups, lower income households, renters and city residents. The network said participation should be monitored to understand inequalities in access to offers through the service, and differences in the outcomes of participating.
National Grid ESO introduced the discounting service as a means of reducing the need for enforced power cuts if energy demand outstripped supply, due to Russia’s invasion of Ukraine.
Resulting sanctions on Russia’s gas exports threatened Europe’s access to gas supplies.The network operator said that there are “continued risks and uncertainties relating to the Russian invasion of Ukraine” this winter.”
5 July: Cornwall Issues Price Cap Forecasts Until June 2024
Energy firms are being warned by their regulator, Ofgem, to retain profits ahead of paying shareholder dividends to help them remain financially resilient in a volatile market, writes Candiece Cyrus.
Financial instability contributed to 30 suppliers folding in 2021/22, when wholesale energy prices began to soar. The cost of transferring customers to other suppliers will be met through levies on customer bills.
The taxpayer also carried the cost of supporting the collapsed firm Bulb – which was deemed too big to fail – before it was sold to Octopus last December.
Ofgem is keen to see financial rigour in the management of energy firms as wholesale prices fall and profitability returns to the market after five years of losses.
The regulator said it expects firms ‘to act responsibly and in the interests of their customers’.
The government is also keen to see households benefit from the fall in wholesale prices, which is reflected in the latest update to Ofgem’s energy price cap. On Saturday, it fell from £3,280 a year for the average household to £2,074 a year (see story below).
However, the effective drop is from £2,500 a year, as the cap was temporarily superseded by the government’s energy price guarantee.
Analyst Cornwall Insight has issued predictions for the price cap for Q4 2023 and the first half of 2024. It says the cap will fall from £2,074 to £1,878 on 1 October before rising to £1,917 on 1 January 2024. The estimate for 1 April 2024 is £1,888. The caps from October 2023 onwards are predicated on reduced annual average consumption figures issued by Ofgem last week (see story below). As ever, actual bills are not capped and will be determined by the volumes of energy consumed.
As a result of cheaper energy, industry analysts expect suppliers to start offering competitive energy deals again within the coming weeks and months.
In a letter to suppliers this morning, Jonathan Brearley, chief executive of Ofgem, also said the regulator will continue to review and update the price cap. It is also considering an alternative to the cap that will better protect customers in volatile market conditions.
It plans to put permanent measures in place so households on prepayment plans pay no more than direct debit customers. Prepayment customers have traditionally paid more, due to the additional administrative costs required to provide this payment method.
However, as of 1 July, the government stepped in to cover the difference in costs for prepayment meter and direct debit customers, but the support is only due to last until April 2024.
The regulator is also:
- reviewing [energy company] operating costs, which account for a large portion of standing charges added to every gas and electricity bill
- proposing to establish an allowance for suppliers to support prepayment customers while reviewing similar allowances for suppliers to help other types of customers with bad debt
- asking suppliers to publish all their domestic tariffs for greater transparency of deals available to customers
- consulting on a new customer standards framework which will focus on those financially struggling and with vulnerabilities.
Vulnerable customers include the elderly, disabled and those with young children. The regulator introduced a voluntary code of practice in April, which all suppliers signed. This followed reports of British Gas breaching Ofgem’s rules and forcibly fitting meters in the properties of vulnerable customers. Last week ofgem launched a statutory consultation to make the code of practice compulsory.
Mr Brearley said: “An energy sector where companies can make a reasonable profit is important to create a sustainable and competitive market for consumers. However, a return to the practices we saw before the energy crisis isn’t on the table – suppliers must reciprocate the support the sector was given by consumers and taxpayers when wholesale prices increased by behaving responsibly as prices fall and profits return.
“The energy market has changed. Ofgem has introduced major changes to the market, and we need suppliers to learn the lessons of the energy crisis and play their part by making sure they’re financially robust, can absorb potential losses and are meeting our new capital requirements. I expect no return to paying out dividends before a supplier has met those essential capital requirements.
“We will closely monitor the situation, including to make sure that the market is operating competitively on price alongside customer service and innovative products, and to make sure that suppliers are meeting their obligations to the most vulnerable.”
1 July: Customers Finally See Benefit Of Falling Wholesale Prices
Today sees the long-awaited reduction in the energy price cap, which governs how much customers can be charged for each unit of energy they use, along with the associated standing charges.
Set by the market regulator, Ofgem, the cap now stands at £2,074. This is how much a household would pay each year if it used the average amount of gas and electricity and paid its bills in arrears by monthly direct debit.
The cap does not limit the size of bills, which are determined by actual consumption. The cap level serves as an indicator of the costs likely to be faced by a typical household.
The price cap is revised each quarter to reflect changes in wholesale energy prices. The previous cap level, which took effect on 1 April, was £3,280.
However, since October last year, the cap has been superseded by the government’s energy price guarantee, which calculated the typical annual bill at £2,500. The guarantee was introduced when it became clear that rocketing wholesale prices would push the cap beyond £3,500.
As of today, the cap is once again in effect, bringing a reduction on the government guarantee of £426 a year. The guarantee will only come back into play if the cap rises beyond £3,000. Analysts expect the cap to fall below £2,000 when it is next revised on 1 October.
Separate caps apply for those who pay in arrears by cheque or cash and for those with prepayment meters.
For cheque and cash customers, the cap has fallen from £3,482 to £2,211 for typical dual fuel consumption. The additional costs reflect the higher costs incurred by energy companies to administer these payment methods.
For prepay customers, the cap has decreased from £3,325 to £2,077 for typical dual fuel consumption, bringing it close to the main cap level. The government insisted that the premium previously paid by prepay customers – again, to cover administrative costs – should effectively be removed from today’s iteration of the cap level.
Many prepay customers are deemed to be financially vulnerable.
Ofgem defines average household annual consumption as 2,900kWh of electricity and 12,000kWh of gas. From October, these figures will be set at 2,700kWh of electricity and 11,500kWh of gas, reflecting reduced levels of consumption as financially-stretched households cut back on usage and find ways to be more energy efficient.
This change will reduce the figure quoted for the cap but, as noted, it does not mean bills will necessarily fall at the same rate. Households will still be charged for energy used, albeit at lower unit rates and with lower standing charges.
From 1 July, the per unit level of the price cap to the nearest penny for a typical customer paying by direct debit will be 30p per kWh for electricity customers and a standing charge of 53p per day.
The equivalent per unit level for a typical gas customer is 8p per kWh with a standing charge of 29p per day.
Analyst Cornwall Insight estimates that, on the basis of the new average consumption figures from October, the cap will drop to £1,871 a year for a dual fuel household based on typical consumption when it is reset. This is £107 lower than its previous forecast of £1,978.
It also expects the cap to rise to around £1,901 a year for the typical household in January 2024, chopping £103 off its last prediction of £2,004 a year, again because of the average consumption figure reduction.
29 June: Households Using Less Energy To Trim Soaring Bills
Analyst Cornwall Insight says the energy price cap, which is set by regulator Ofgem to limit household bills, should fall to a lower level than it first predicted in October this year and January 2024, writes Candiece Cyrus.
The revision results from changes Ofgem has made to the way it calculates typical energy consumption. It says households are using less gas and electricity because of high prices and improved energy efficiency, so consumption figures need to be reduced accordingly.
The cap refers to the annual bill an average household can expect to pay. Previously, this was calculated on the basis of 2,900 kWh of electricity and 12,000 kWh of gas being used. These figures have been revised down to 2,700 kWh and 11,500 kW.
However, this does not mean bills themselves will change. Ofgem has made no changes to the per unit cost of gas or electricity, or to standing charges, so households will continue to pay for the energy they use as at present.
From 1 July, the cap will stand at £2,074, which is down from the £2,500 energy price guarantee imposed by the government since last October, when the cap topped £3,500.
Cornwall Insight predicts that the cap will drop to £1,871 a year for a dual fuel household based on typical energy consumption when it is reset in October. This is £107 lower than its previous forecast of £1,978.
It predicts the cap will rise marginally to around £1,901 a year for the typical household in January 2024, chopping £103 off its last prediction of £2,004 a year.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “The fall in the average price cap predictions reflects Ofgem’s efforts to align with the evolving energy consumption patterns of typical households, as consumers respond to high prices, energy efficiency measures, weather conditions and other influences by reducing their energy usage.
“While typical household predictions may provide some insight for consumers, households are still facing the challenge of bills that are well above historic levels. This situation brings us back to the question of the cap’s purpose – as doubts about the cap’s effectiveness in protecting consumers and its impact on tariff competition become a regular part of energy discussions.”
14 June: Regulator Tells Consumers To Think Before They Fix
Analyst Cornwall Insight is forecasting that the price cap that governs annual household energy bills will fall to £1,933 for those with typical consumption in October before edging up to £1,944 in January 2024. The cap was last below £2,000 in September 2022.
At present, the cap – calculated each quarter by regulator Ofgem – stands at £3,280, having touched £3,550 in October 2022 and a peak of £4,279 in January this year.
The rapid increase in the cap level prompted the government to introduce its Energy Price Guarantee (EPG), which has limited average consumption household bills to £2,500 a year since October 2022.
This guarantee will cease to apply from 1 July, when the Ofgem cap will fall from £3,280 to £2,074.
The cap is tumbling because of a drop in wholesale prices, which in turn have reduced because energy companies have sourced alternative sources of supply to those disrupted or ‘choked off’ by the conflict in Ukraine and associated sanctions on Russian gas and oil.
Market watchers are speculating that the fall in the level of the cap will prompt some suppliers to reintroduce fixed-term, fixed price tariffs, which have been almost entirely absent from the market for the past 18 months because of spiralling wholesale prices.
Fixed energy deals – usually 12 or 24 months in duration – hinge on the supplier being able to buy fuel at a guaranteed price for the duration of the term. They lock in the price per unit of gas and electricity for the customer, but actual bills are determined by the amount of energy used.
The advantage of fixing is that the customer is protected from rising prices while the fix is in place.
However, if the day-to-day price of energy falls, the customer will be marooned on the fixed price and unable to benefit. Most fixed tariffs carry exit fees for those wanting to leave the deal early – these can be as high as £75 per fuel.
Ofgem has used social media to urge those considering a fixed tariff to proceed with caution. It said:
“THINK BEFORE YOU FIX: Fixed-rate energy tariffs have seen a return to the market but check if they are right for you. Prices are still unpredictable and signing up for a fixed rate now might mean you miss out if prices fall in the future.”
12 June: Small Business Group Wins ‘Blend & Extend’ Promises
The Federation of Small Businesses says EDF is joining the ranks of energy suppliers that will allow small business clients trapped on high-cost fixed tariffs to adjust their contracts to save money.
The French-owned firm follows in the footsteps of British Gas, Engie and Drax in committing to the Federation’s ‘Blend & Extend’ initiative, which sees businesses that locked into high prices last summer able to lengthen their contracts in order to spread the higher costs over a longer period.
Current lower energy prices will also feed into the calculation, helping to bring the overall cost down.
Tina McKenzie, head of policy at the Federation, commented on the British Gas announcement last month, which sees a 12-month extension to tariffs: “Allowing small businesses to come out from the energy contracts they fixed during market peak last year is vital to their survival.
“British Gas is doing the right thing to adopt our call and give small businesses the option to ‘blend and extend’. We hope this is made available to all small business customers who are trapped in fixed tariffs from last year’s peak period. Now is the time for other suppliers to follow suit.”
British Gas is also distributing grants worth £15 million to small businesses facing severe financial pressures.
In a comment reported in the Guardian, a Federation spokesperson said it will continue to scrutinise energy firms: “This [Blend & Extend initiative] is a major step forward and a tangible win, but the devil will be in the detail to ensure that the promised contracts do indeed match a reasonable price, so we will be checking on the first contracts to make sure.”
Commercial energy contracts are almost always arranged on a fixed term, fixed rate basis, with hefty financial penalties for businesses that wish to break the contract early.
31 May: Prepay Customers Urged To Redeem By End Of June
The government is urging households with traditional prepayment meters to use their energy bill support vouchers by the deadline of 30 June, writes Candiece Cyrus.
It introduced the Energy Bill Support Scheme last October to provide £400 of help over the six months to March, paid in instalments of £66 and £67.
Those on traditional prepayment meters were sent vouchers in the post or by email that could be redeemed at the Post Office, or in the 28,000 UK stores with PayPoint services, up to 90 days from their issue date.
Over 83% of vouchers worth £650 million have been claimed, but £130 million-worth still need to be redeemed by the end of June.
Charities and energy suppliers are working with the government to encourage those entitled to the payments to use their vouchers.
Adam Scorer, chief executive of fuel poverty charity National Energy Action said: “Some customers didn’t receive them, others struggled to redeem them.”
Matthew Cole, head of Fuel Bank Foundation, a charity that provides emergency fuel vouchers to prepayment meter customers, said: “We found that reasons why vouchers haven’t been redeemed include people not receiving them, due to incorrect details or the person having moved house and their records not being updated, or they lost or deleted the voucher.”
Lost, missing or expired vouchers can be reissued, as long as they are redeemed by 30 June 2023. Anyone with a traditional prepayment meter who hasn’t received their vouchers, is unsure how to redeem them, or needs one to be reissued, is being told to contact their supplier for help.
Ofwat, the water sector regulator, says 23% of bill payers are struggling to pay their water bill. This compares to 20% of bill payers in October 2022, and 15% in March 2022.
It adds that only around 30% of customers are aware that financial help is available from water firms while, out of those who have reported ‘struggling all the time’ with household bills, only 15% have reported having received support from their water supplier.
The percentage of bill payers who report ‘never’ having struggled to pay a household bill has fallen from 45% in 2021 to 25%.
Ofwat has called on water companies to “continue stepping up and supporting customers who are struggling financially.” Information on support from water firms is on the Ofwat website.
25 May: Cap Drop Reflects Reduction In Wholesale Prices
As widely predicted, the energy price cap set by Ofgem, the market regulator, will fall as of 1 July, from £3,280 to £2,074. It will determine the cost of energy for households in England, Wales and Scotland until the end of September. A new cap will then take effect from 1 October.
At present, domestic bills are governed by the Energy Price Guarantee, which was introduced by the government last autumn when the Ofgem cap soared beyond £3,500. This guarantee stands at £2,500, but will be superseded by the new cap.
The level of the cap is based on typical use of an average household on their supplier’s standard default tariff. It caps what suppliers can charge for each unit of energy consumed, along with any standing charge, and is not a cap on total bills – households still pay for the energy they use.
From 1 July the per unit level of the price cap to the nearest penny for a typical customer paying by direct debit will be 30p per kilowatt hour (kWh) for electricity customers and a standing charge of 53p per day. The equivalent per unit level for a typical gas customer will be 8p per kWh with a standing charge of 29p per day.
Analysts expect the October cap to dip below £2,000 before edging above that figure at the beginning of 2024. However, the actual level of the cap is determined by wholesale prices in the weeks prior to it being announced, so there is no certainty in these predictions.
The reduction in the cap in July will lead to lower typical household bills than at present, but as recently as March 2022, the energy price cap was just £1,277 a year, and this time last year it was still under £2,000, at £1,971. A cap higher than £2,000 is therefore expensive in historical terms.
As reported below, analyst Cornwall Insight does not expect household bills to return to pre-pandemic, pre-Ukraine war levels until the end of the decade.
The lower level of the cap – which reflects lower wholesale energy prices – may trigger the reemergence of tariff switching, with households able to shop around for cheaper deals. If this happens, competitive fixed-rate, fixed-term (12 month) offers may be seen from late June onwards.
Prior to the energy market seizing up in 2021/22, around six million households switched energy tariff every year.
July will also see customers on prepayment meters charged the same unit rates for gas and electricity as those who pay their bills in arrears by direct debit. At the moment, prepayment bills are higher to account for administration and servicing costs, but the government has directed that this premium should be removed.
18 May: Cornwall Insight Estimates Cap To Sit At £2,053
Energy market regulator Ofgem will reveal the latest iteration of its price cap on Thursday 25 May, covering the period from July to the end of September.
Cornwall Insight, the market analyst, is forecasting that it will fall to £2,053 a year for a household with typical levels of consumption, paying in arrears by direct debit – but actual bills always reflect the amount of energy used.
The cap currently for typical usage stands at £3,280 but is expected to fall thanks to tumbling wholesale energy prices, in particular natural gas.
At the moment, the cap has no relevance to bills because it is higher than the separate government price guarantee, which limits average annual bills to £2,500. However, if the cap falls below the level of the guarantee, suppliers will have to set their prices at or below the cap level, raising the prospect of lower bills than at present from July onwards.
It is also possible that suppliers might start competing for business on the back of falling wholesale prices. There have been no switching tariffs available on the open market for well over a year.
Cornwall Insight’s prediction for the Ofgem cap for October to December is that it will fall to £1,975, rising to £2,044 in the first quarter of 2024. The picture looking further ahead remains unclear because wholesale prices could rocket again in the wake of unforeseen international turmoil.
The analyst commented: “Despite the cap falling (in July) from the sky-high prices of the past two years, the figure remains over £1,000 per year more than the price cap levels seen prior to the pandemic.
“We do not currently expect bills to return to pre-2020 levels before the end of the decade at the earliest.
“However, we hope to see the reappearance of more competitive fixed-rate energy tariffs as prices begin to stabilise, providing consumers with additional options to manage their energy costs.
“Prices remain subject to wholesale energy market volatility, and our reliance on energy imports means geopolitical incidents could still have a significant impact on energy prices.”
18 May: Firms Provide Refunds After Breaching Price Limits
Customers of Good Energy and OVO Energy who were overcharged to the tune of £2.7 million are to be refunded and compensated, writes Candiece Cyrus.
This follows an investigation by industry regulator Ofgem that found that, between October 2022 and March 2023, almost 11,000 OVO Energy customers were overcharged a total of just under £1.5 million.
It also found that, between January 2019 and October 2022, just under 7,000 Good Energy customers were overcharged by almost £400,000.
The OVO Energy customers will be automatically refunded and receive compensation totalling an average of £181 each. Overcharged Good Energy customers will automatically receive a refund and compensation averaging £109 each.
The customers were overcharged relative to Ofgem’s energy price cap or the government’s energy price guarantee, which is temporarily replacing the cap to keep prices more affordable. Suppliers are obliged to set their prices at or below the level of the cap or guarantee, whichever is in effect at the time.
Dan Norton, Ofgem’s deputy director of retail, said: “Protecting consumers is always our top priority, and we expect suppliers to ensure customers pay no more than the level of the price cap or energy price guarantee – schemes put in place with the very purpose of helping people.
“It is totally unacceptable that Good Energy and OVO Energy customers were overcharged, particularly at a time that is already so challenging and stressful for consumers across the UK.
Energy suppliers should hear this loud and clear: we expect suppliers to act with the utmost care and integrity. We will continue to hold them to account if they do not meet their customer protection or reporting obligations.”
Good Energy and OVO Energy will also pay £1.25 million and £10,000 respectively to Ofgem’s redress fund, which supports customers in vulnerable circumstances.
Ofgem says OVO Energy’s contribution would have been considerably higher had it not notified the regulator of its overcharging issue and resolved it in good time.
Good Energy has submitted an improvement plan, at the request of the regulator, to ensure it puts measures in place to prevent overcharging in the future.
The firm, along with E.ON Next and Octopus Energy, has also been fined by Ofgem for failing to send a final bill or compensate customers who switched to another provider. It has been ordered to pay 350 former customers a total of £18,000 (see update below).
17 May: E.On Next, Octopus, Good Energy Missed Deadlines
Three energy suppliers have paid £8 million in fines for failing to compensate former customers on time.
Suppliers are obliged to get a final bill out to customers who’ve switched to another provider within six weeks, as set out in the Guaranteed Standards of Performance (GSOP) regulations introduced in May 2020.
Those who fail to send the bills within six weeks must pay £30 in one-off compensation to affected customers. If bills fail to arrive within a further 10 working days, customers are entitled to a further £30.
Energy regulator Ofgem told E.On Next to pay £5.5 million to almost 95,000 customers, Octopus Energy to pay £750,000 to 19,000 customers and Good Energy to pay 350 customers a combined total of £18,000.
Ofgem says not getting a final bill in a timely manner can result in consumers being incorrectly set up at the new supplier, being in debt at the old supplier and receiving a large, unexpected bill.
The watchdog found the three suppliers either missed or unduly delayed £6,305,925 worth of compensation payments owed to more than 100,000 customers.
This is the first time Ofgem has enforced GSOP rules. Neil Kenward of Ofgem said: “Ofgem introduced these standards to make sure customers get the service they deserve when switching energy suppliers.
“Our rules mean that, where energy companies drag their heels, customers are automatically compensated. We won’t hesitate to hold energy companies to account, as we have done today.
“As the energy market starts to recover, we’ll likely see a return to more switching, and this action is a reminder to suppliers that they need to make switching as easy and convenient as possible for their customers, and where they cause undue delay, pay compensation swiftly.”
Suppliers paid additional compensation of £1.7 million to customers or the Energy Industry Voluntary Redress Scheme (EIVRS), which supports vulnerable consumers. This included £1.3 million from E.On Next in recognition of system failings and compensation delays.
Ofgem says all three suppliers have now updated their billing processes and systems to ensure payments will now be made in line with the regulations.
12 May: Affordability Issues Dog Upgrades To Housing Stock
Citizens Advice is warning that the majority of homes will require some level of energy efficiency upgrade, costing an average of £15,000, if the UK is to achieve net zero carbon emission status by 2050, writes Candiece Cyrus.
It says most households that are not eligible for government support through, for example, the Boiler Upgrade Scheme, are facing financial barriers to making the necessary changes.
Applicants for the scheme must be qualifying property owners with a Energy Performance Certificate (EPC) that has no outstanding loft or cavity wall insulation recommendations. Grants of up to £6,000 towards heat pumps and biomass boilers.
Following a survey of 12,000 homeowners in England and Wales, Citizens Advice found that around 90% of respondents cited the cost of home improvements, from the installation of floor and wall insulation to the fitting of double or triple glazed windows, as a barrier to having the work done.
Fewer than 20% of respondents said they would be able to afford a heat pump, which costs an average of £10,000, without borrowing money, while fewer than 20% were willing to borrow money through a mortgage or unsecured loan to fund improvements.
Aside from the financial implications, most respondents were not interested in making any energy efficient upgrades to their home. Only 40% indicated an interest, with most showing preference for measures such as loft insulation and double or triple glazing over installing a heat pump, solid wall insulation and cavity and floor insulation.
A similar number said they would consider paying for energy efficient measures after they were told it could save the average household £300 on their annual energy bill, showing the need for incentives.
Around 30% of respondents were concerned about the effectiveness and suitability of any measures taken.
The survey also revealed that age plays a role in homeowners’ enthusiasm towards home improvements. Respondents aged 18-34 were almost three times more likely to be interested in installing a heat pump than homeowners aged over 55.
According to the Energy Saving Trust, fewer than 250,000 of the UK’s 29 million homes have heat pumps, but the government expects that millions more will be needed over the next 10-15 years to meet its net zero targets.
9 May: Analyst Sees Competition Return As Market Stabilises
Analyst Cornwall Insight says energy firms could start offering fixed-rate, fixed-term deals from July as wholesale prices stabilise at lower levels than have been seen for over 18 months, writes Candiece Cyrus.
Competitive fixed deals have been virtually nonexistent since the market was thrown into crisis ahead of Russia’s invasion of Ukraine in February last year and the subsequent sanctions placed on Russia’s gas exports.
Wholesale prices rose steadily in 2021 as fears of conflict grew, and over two-dozen energy suppliers went out of business.
However, a combination of a mild winter and reduced customer demand in 2022/23 has led to higher than predicted European storage levels, which has helped to lower concerns over energy supply and curb market volatility.
At present, the government’s Energy Price Guarantee, which was introduced in October last year to help households with soaring energy bills, limits the amount firms can charge their customers per unit of energy, and in standing charges, at £2,500 per year for the average household.
It overrides the price cap, set quarterly by energy regulator Ofgem, which usually limits how much energy firms can charge their customers per unit of energy and in standing charges based on wholesale prices.
Energy suppliers are currently setting their prices with reference to the guarantee. However, from July, the Ofgem price cap is likely to undercut the government guarantee, at which point firms will only be able to offer tariffs at or below the cap.
Cornwall Insight predicts the cap will fall to £2,063 per year for an average household, for the period between July and September, from its current level of £3,280. It says the cap should remain relatively stable heading into next year, rising to £2,098 per year between October and December, and then to £2,162 per year between January and March 2024.
While fixed deals can help energy customers manage their bills better, as their per-unit rates will remain the same over the deal term (usually 12/ 24 months), they should note that there is a risk of losing out on paying less if wholesale energy prices fall during this period.
Dr Craig Lowrey at Cornwall Insight says: “As the wholesale energy market has levelled out in recent weeks, our predictions for the price cap have followed suit. Some energy suppliers will potentially look to leverage this opportunity to bring back fixed tariffs on or around the price cap, with stable projections lowering concerns they will lose out over the fixed term.
“This potential re-emergence of competitive tariff propositions presents an opportunity for households to finally get a grip on their energy bills, having been hit hard by the energy crisis. While this seems positive, fixing energy tariffs is a gamble, the market may go down as well as up, and households run the risk of getting locked into bills higher than the price cap.”
Regulator Ofgem has tweeted out the message THINK BEFORE YOU FIX today, adding: “Fixed-rate energy tariffs might be appearing back on the market but check if they are right for you. Prices are still unpredictable and signing up for a fixed rate now might mean you miss out if prices fall.”
24 April: ‘Tell Us Once’ Principle Across Range Of Providers
Energy regulator Ofgem is proposing the creation of a universal joint priority services register that would enable vulnerable households on certain means-tested benefits to sign up once to receive extra help from utility firms, writes Candiece Cyrus.
At present, customers need to sign up to each company’s register separately. Ofgem’s proposed joint register would unify existing databases energy firms and other utility services, including water suppliers.
Customers are deemed vulnerable due to factors such as their age, illness, a disability or having young dependents in their household.
Customers officially identified by a firm as vulnerable are provided with additional assistance such as:
- priority support in an emergency, which includes advance notice of scheduled power cuts
- the provision of hot meals
- a nominee scheme which allows a family member of the customer’s choice to receive their bills and deal with suppliers on their behalf
- an identification and password scheme to identify genuine workers when they call at their home.
Jonathan Brearley, Ofgem’s chief executive, commented: “Our rules clearly require suppliers and network companies to use their priority services register to provide appropriate support to customers. This is an extremely important part of the licence conditions and we will respond robustly if this is not the case.
“We should all consider building towards a joint register, not just between water and energy, but including wider sectors and potentially local and national government, such as data held by the Department for Work and Pensions.
“Ideally, this joint register would be based around a ‘tell us once’ principle – where families who have vulnerabilities tell one agency about this and, with permission, this is shared across the others with a single, reliable source of data to anticipate, identify, and respond to the needs of those customers.”
The energy regulator says firms are not doing enough to inform their customers about the support they could receive if vulnerable. Only one in three customers are aware of a priority services register, according to its research, and of those who are aware, a substantial minority who could be eligible for support based on their circumstances, are not on it.
Dr Elizabeth Blakelock, principal policy manager at Citizens Advice, tweeted: “No single regulator can make this happen – they only have the ability to direct the firms in their sector. So we need the government to set up a taskforce to agree the scope of this system and ensure firms participate.”
18 April: Campaigners Insist Wider Protections Are Required
Ofgem, the energy market regulator, today released a Code of Conduct for energy suppliers, outlining how they should conduct involuntary – or forced – prepayment meter (PPMS) installations, writes Bethany Garner.
The aim is to limit installations at vulnerable households, with an outright ban on high risk individuals (see below).
Involuntary PPM installation is typically used as a last resort for customers who fall into significant arrears on a standard energy meter. But in recent months suppliers including British Gas, Scottish Power and Ovo have come under fire for forced installations in homes occupied by ‘vulnerable’ customers, including the elderly – which is not permitted.
The issue came to light when The Times reported instances of supplier representatives breaking into properties to change the meter.
There has been a temporary ban on forced installations since the story broke in March. They will restart in May, in approved circumstances, with suppliers having to satisfy a range of criteria before proceeding.
The code, developed in consultation with Citizens Advice, Energy UK and other stakeholders, will take effect from today. All energy suppliers in England, Scotland and Wales have signed up.
It bans suppliers from forcing PPM installation for customers Ofgem considers ‘high risk’.
This category includes adults aged 85 and over, individuals with severe or terminal illnesses, and those who need a consistent electricity supply for medical reasons. These individuals may depend on electrically powered equipment such as ventilators or dialysis machines.
The Code also clarifies the circumstances under which forced PPM installations can still be made.
Suppliers can’t install a PPM unless the customer hasn’t paid their bill for at least three months, or has outstanding debt of at least £200 per fuel.
If the customer has already arranged a debt repayment plan, the supplier can’t install a PPM without their consent.
While customers in the ‘high vulnerability’ group are shielded from involuntary installation altogether, individuals classed as ‘medium risk’ will be considered on a case by case basis before forced installation takes place.
This group includes households with children under five, elderly adults (over 75) and individuals with serious physical or mental health conditions.
Our energy spokesperson, Kevin Pratt, said: “It is welcome news that the welfare of those deemed high risk will be safeguarded by the new rules, but charities are concerned that others – those under 85 and some people with serious illnesses or young children – may literally be left out in the cold because forced installations will still be permitted.”
Caroline Abrahams, charity director at Age UK, said: “It’s good to see some regulation coming in to begin to rein in the practice of forcibly installing pre-payment meters, which has previously been something of a Wild West, but these new rules do not go far enough.
“We don’t think any older person should be subjected to this treatment, not only the over-85s and the over-75s who are deemed vulnerable in some way, partly as a matter of principle but also because of concerns about how effective the assessment of vulnerability will be.
“The risk is that some older people – and younger ones too – who should definitely not be on a pre-payment meter end up on one.”
The Code of Practice also stipulates that:
- Before forcibly installing a PPM, suppliers must carry out a ‘site welfare visit’ to assess whether the device is suitable for the household, and whether any occupants should be considered ‘vulnerable’.
- During these visits, the supplier’s representative must use an audio recording device or body camera – which must also be worn during PPM installations.
- If a supplier goes ahead with forced PPM installation, they should use a smart meter whenever possible.
- All new PPMs must be installed with £30 credit, which is added to the customer’s outstanding energy debt.
- Once the meter is installed, suppliers must attempt to contact the customer within 72 hours to ensure they know how to use it.
Mr Pratt added: “The root of the problem is simply that energy is too expensive. That’s why households fall into unmanageable arrears on their standard meter bills and end up being forced onto a prepay arrangement. But we’re only going to tackle that through radical action such as the introduction of a social tariff that subsidises prices for those deemed most vulnerable.
“For that to happen, we need buy-in from the regulator, suppliers and, crucially, the government, and other billpayers will need to accept that a social tariff will effectively be funded by everyone’s energy bills. But unless there is deep structural reform to the beleaguered energy sector, supported at a societal level, it is hard to see how contentious issues such as clumsy and cruel forced meter installations are going to be resolved.”
If a supplier installs a PPM in a way that breaks the Code, the device must be removed, and the customer may be eligible for compensation.
Customers who believe their supplier has breached this code can contact the Energy Ombudsman.
31 March: Analysts Says Business Energy Costs Set For 133% Rise
Analyst Cornwall Insight is predicting that Ofgem’s energy price cap, which ordinarily limits what suppliers charge households per unit of energy and for standing charges, will drop to £2,024 a year in July and £2,076 a year in October for a household with typical energy consumption, writes Candiece Cyrus.
This is higher than its estimates announced last week, of £2,000 a year for July and £2,023 a year for October, indicating continued volatility in the wholesale energy market.
The cap for the period April to June is £3,280, having stood at £4,270 in the first quarter of the year.
The cap isn’t currently applied to household bills as the government’s Energy Price Guarantee, introduced in October last year, caps bills at £2,500 a year for the typical household. It will remain at this level until 31 March 2024.
Once the cap falls below the level of the EPG, the latter will become defunct and the cap will be applied to household bills once again. While it would mark a large reduction in bills, it would still be considerably higher than the cap level before 2021.
Mr Lowrey said: “The energy market has been on a difficult journey over the past three years, with consumers having faced energy bills at levels never experienced before.
“Our forecasts for the second half of 2023 show the prospect of a more stable energy climate, which all being equal, will see energy bills continue their downward trajectory. However, in the short-term they still remain well above historic highs.
“Of course, we must never take anything for granted, and as quickly as they fall, global shocks and our reliance on energy imports could see the energy market, and subsequently bills, rise yet again.”
Huge increases in store for business users
Cornwall Insight also says businesses that had to fix their energy bills when wholesale prices peaked in August last year will see a rise of up to 133% in their electricity bills from tomorrow.
Most business energy tariffs have a fixed duration, with firms only able to switch suppliers during a ‘renewal window’ towards the end of the term. This means they are at the mercy of prevailing market prices at that point.
Cornwall Insight says the hike in prices is due to a cut in the government’s support for businesses, with the Energy Bill Relief Scheme being replaced with the less generous Energy Bill Discount Scheme (EBDS) 1 April.
The analyst’s announcement follows a warning from the Federation of Small Business, that increased energy prices could force 370,000 firms to downsize, restructure, or at worst, close (see story below).
Under the new scheme, which runs until 31 March 2024, businesses will receive a much-reduced discount on the unit price of their gas and electricity once wholesale prices reach a certain threshold. Firms that are heavy energy users, otherwise known as Trade Intensive Industries or ETIIs, will need to apply for a larger discount.
Dr Craig Lowrey at Cornwall Insight said: “The impact of EBDS on businesses is not uniform and will vary significantly across sectors. Energy-intensive industries that will receive additional support under EBDS may experience greater financial stability, while vulnerable businesses, some already struggling post-pandemic, may find reduced support levels and expensive fixed contracts a tough pill to swallow.”
30 March: Small Firms Face Stark Choices As Bills Set To Rocket
The Federation of Small Businesses is warning that this weekend’s changes to government subsidies for business energy costs could lead to 370,000 firms being forced to make fundamental changes to their operations, including closure in some cases.
On Saturday 1 April, the Energy Bill Relief Scheme (EBRS) will be replaced with the Energy Bills Discount Scheme (EBDS).
The new scheme, which will run until 31 March next year, provides non-domestic energy users with a discount on the price of each unit of energy they use. This kicks in when the price per unit reaches a certain threshold, and is limited to a fixed amount.
For most non-domestic energy users in Great Britain and Northern Ireland these threshold prices and maximum discounts have been set at:
- electricity: £19.61 per megawatt hour (MWh) with a price threshold of £302 per MWh
- gas: £6.97 per megawatt hour (MWh) a price threshold of £107 per MWh.
Businesses which are highly dependent on electricity and gas usage, known as Energy and Trade Intensive Industries or ETIIs, will be able to apply for a larger discount to a maximum limit, which will apply to 70% of their energy volumes.
For electricity, the maximum discount will be £89 per MWh with a price threshold of £185 per MWh. For gas, £40 per MWh with a price threshold of £99 per MWh.
Suppliers will automatically apply the discount to business energy bills.
The FSB and other business groups say the support provided is significantly lower than that offered by the EBRS, which was introduced in October last year to provide a discount from a wholesale unit price threshold of £211 per MWh for electricity and £75 per MWh for gas.
According to the FSB, 340,000 small businesses that fixed their energy bills last year, when wholesale prices were at their highest, will see their bills rise in some cases by many thousands of pounds.
It says a pub that uses 48,000 kWh in electricity and 192,000 kWh in gas annually, which moved on to a new energy tariff in August last year, would have seen its estimated £85,000 annual energy bill reduced by £60,000 under the EBRS, which ends on 31 March.
From 1 April, under the EBDS, it would only receive just over £2,000 in support, leaving it with £83,000 still to pay in energy costs.
The FSB is therefore calling for a ‘Help to Green’ scheme as a long-term solution to support businesses with high energy costs. It would provide small businesses with a £5,000 voucher for investing in energy-saving or even energy-generating measures. This includes high quality insulation, solar panels and heat pumps.
It also has called for suppliers to be sympathetic to businesses and offer an ‘extend and blend’ approach to tariff offers, allowing businesses on expensive tariffs to benefit from a fall in wholesale energy costs since January this year.
However, as suppliers buy months in advance, today’s prices still reflect the higher bulk costs paid last year.
Tina McKenzie, policy chair of the FSB, said: “The jump in energy bills on April Fool’s Day won’t be a laughing matter but will be a shock to hundreds of thousands of small businesses, who signed up to fixed contracts when the government discount was guaranteed under EBRS.
“Some 370,000 small firms could also be forced to consider downsizing, restructuring or closing as it is impossible to pass on the full costs to customers, who cannot suddenly afford to pay £25 for a pizza or see the price of a pint double.
“There’s much that could and should be done rather than leaving small firms high and dry. Allowing the most vulnerable small businesses to renegotiate or ‘blend and extend’ their energy contracts to better reflect lower wholesale energy prices is the least the government and energy suppliers could do.”
27 March: Firms Urged To Encourage Voucher Use
Figures published by the Department for Energy Security & Net Zero today show that three energy companies – British Gas, Scottish Power and Ovo Energy – accounted for 70% of forced prepayment meter installations in 2022, writes Candiece Cyrus.
In total, 94,201 prepayment meters were force-fitted under warrant last year, with the three companies above responsible for 66,187.
Energy companies have traditionally applied to the courts for permission to enter a property using a warrant in order to change the occupant’s meter, usually as a last resort because of significant arrears.
However, the practice has come under the spotlight following revelations by The Times that British Gas was forcibly fitting meters in properties occupied by ‘vulnerable’ customers, including the elderly, which is not permitted.
As a result, Grant Shapps MP, energy security secretary, suspended the force-fitting of prepayment meters until 31 March. Ofgem has since extended the suspension until it is satisfied companies are abiding by a revised code of conduct.
The Chancellor also announced in his Budget on 15 March that households on prepayment meters will no longer need to pay more than others for their energy from July. At present, prepayment charges are higher to reflect the cost of administering the system.
In its analysis of the 2022 figures, the Department for Energy singles out Scottish Power as the ‘worst offender’ when comparing the amount of meters force-fitted (over 24,300) relative to its customer base. The government says this equated to 500 installations per 100,000 meter points.
British Gas forcibly fitted 25,000, while for Ovo Energy the figure was over 16,000.
This compares to around 10,000 by E.ON, 7,000 by EDF and 4,000 by Shell. Both Utilita and Bulb forcibly fitted over 2,000, and there were 1,500 by Utility Warehouse, just over 100 by Tru Energy and fewer than than 100 by Ecotricity, Good Energy and Octopus.
Mr Shapps last month said today: “Today’s figures give a clear and horrifying picture of just how widespread the forced installation of prepayment meters had become, with last year seeing an average of over 7,500 force-fitted a month.
“After my calls for change, I’m pleased that suppliers have made their actions public and agreed to put a stop to forcing prepayment onto vulnerable customers for good – but this cannot happen again.
“I will be watching Ofgem’s ongoing review closely so customers get the support they need – and those vulnerable consumers who have wrongly suffered forced installations get the justice they deserve in the form of redress.”
Mr Shapps also urged suppliers to help households on traditional prepayment meters to access the 2.1 million vouchers yet to be claimed under the government’s Energy Bills Support Scheme.
An increasing number of those with traditional prepayment meters have been redeeming their vouchers – as of February, 7.6 million vouchers had been redeemed by two million households. The percentage of redeemed vouchers has been steadily rising, reaching 76% in January and 78% in February.
The vouchers have provided £400 towards household energy bills in instalments over six consecutive months from October to March.
Suppliers send customers on traditional prepayment meters their vouchers by post, text, email or as automatic credit on topping-up. They can be redeemed at the Post Office or in the 28,000 UK stores with PayPoint services up to 90 days from their issue date.
15 March: Prices Due To Fall In July As Lower Cap Kicks In
Ahead of this afternoon’s Budget, the government has confirmed that its Energy Price Guarantee (EPG) will be kept at £2,500 until the end of June. It was scheduled to rise to £3,000 on 1 April.
The cost of subsidising domestic energy bills has fallen, giving the Chancellor, Jeremy Hunt, scope to extend the measure in a move he says will shield a typical household from a £160 price increase.
The quoted EPG figures represent the annual bill for a household with average consumption paying in arrears by direct debit. Those with prepayment meters pay slightly more under the EPG, but Mr Hunt is also using the Budget to end this differential so that the so-called prepayment premium is eliminated.
This will save average consumption prepayment customers around £45 a year when it comes into effect later this year.
The government says that, if the EPG had not been introduced in October to supersede the price cap operated by Ofgem, the market regulator, typical bills would have reached £4,279 a year this winter.
The price cap, which is reviewed quarterly, will fall to £3,280 on 1 April, still higher than the EPG. However, the cap is forecast to fall to £2,013 in July, at which point suppliers will be required to offer tariffs that conform with the cap, rather than the EPG.
The steep fall in wholesale gas prices in recent weeks has not yet been reflected in household bills because suppliers buy in advance – today’s bills still reflect the bulk costs paid in the autumn.
But if wholesale prices continue to fall, it is thought we may see the re-emergence of competition between suppliers, with keenly priced tariffs being used to encourage customers to switch between firms – a market phenomenon that hasn’t functioned for 18 months.
The EPG will remain in place until the end of March 2024, reverting to £3,000 on 1 July. It will come into play once more if the Ofgem cap rises above this figure due to increases in wholesale prices.
In addition to forecasting the cap to sit at £2,013 from July to September, industry analyst Cornwall Insight predicts it will be at £2,002 in the fourth quarter.
Mr Hunt is expected to announce further cost-of-living support in his speech, including more help with childcare costs for parents on Universal Credit.
No announcement has been made ahead of the Budget regarding support for commercial energy consumers, whose higher bills are inevitably being passed on in the form of higher prices.
Danni Hewson, head of financial analysis at AJ Bell, said: “From local swimming pools to those industrial-sized greenhouses that grow our precious salad, energy costs have become enemy Number 1. This Budget might have been touted as one to stimulate growth but without extending help for business as well as households, growth might be difficult to incubate.”
14 March: Companies Must Comply With Code Of Practice
Energy regulator Ofgem has extended the ban on the forced installation of prepayment meters beyond the end of March.
The ban, which also applies to the remote switching of smart meters to prepayment basis, was introduced last month by Ofgem, at the behest of Grant Shapps MP, energy secretary. This followed reports in The Times that British Gas had forcibly installed prepayment meters at the premises of vulnerable customers.
It subsequently emerged that other suppliers were similarly not treating their customers fairly with regard to moving them onto prepayment meters in order to limit the arrears on their accounts (see stories below).
A code of practice is being drawn up to ensure customers’ interests are protected with regard to the use of prepayment meters.
Jonathan Brearley, Ofgem CEO, told members of the cross-party Parliamentary Business, Energy & Industrial Strategy Committee of MPs that his priority is to make sure the industry gets its act in order: “Companies will only restart installations when and if they can establish that they are acting in accordance with the new code of practice.”
8 March: Govt Urged To Hold Price Guarantee At £2,500
Citizens Advice, the official advocate for energy consumers, is calling for the introduction of a cut-price ‘social’ tariff for hard-pressed households who meet the official definition of being in fuel poverty, writes Candiece Cyrus.
Households that spend more than 10% of their income, after housing costs, on energy bills are deemed to be in fuel poverty, with an estimated 10 million homes currently in this situation.
The charity says this number will rise to 12 million households if the government’s Energy Price Guarantee is reduced on 1 April, as planned.
At present, the Guarantee subsidises bills so that a typical household is paying £2,500 a year for its gas and electricity. This figure would rise to £3,000 – a 20% increase – from April if planned changes take effect, although Citizens Advice says it is widely expected that the Guarantee will remain at £2,500 after extensive lobbying by charities and consumer groups.
An announcement on the future of the Guarantee is expected in the Budget next week.
If the Guarantee were not operating, typical energy bills would be above £4,200 now and around £3,300 from April. Citizens Advice says households are paying twice as much for their energy as they were in 2021, with households on the lowest incomes spending more than 50% of their income after housing costs on energy bills compared to 34% in 2019.
The idea of a subsidised social tariff was put forward by Keith Anderson of Scottish Power last year. Ofgem, the market regulator, is examining how such a tariff might operate and, crucially, how eligibility would be determined (see stories below).
Citizens Advice says a social tariff could reduce bills based on a household’s level of income and energy consumption, with average savings £381. Reductions could reach up to £1,500 for households on the lowest incomes.
Dame Clare Moriarty, Citizens Advice’s chief executive, said: “Energy affordability is a long-term problem that needs a long-term solution. A social tariff protects millions of people from spending excessive amounts on their bills.
“High energy costs have left too many people choosing between heating and eating. Uncertainty over future high prices only adds to the stress and worry felt in households across the country.
“This policy helps make energy bills more affordable in the years ahead and supports the shift to warmer, safer homes that are ready for the net zero transition.”
The announcement of the social tariff proposal follows Age UK’s call for a ‘prepayment amnesty’, which would allow the four million UK households on prepayment meters to have their meters uninstalled for free and replaced by a credit meter.
According to Age UK, 25% of the four million households on a prepayment meter have an occupant aged over 60, and 85% of this group are in fuel poverty and/or receive benefits, which means they are on the lowest incomes. The charity says it has been contacted by those who ‘self-disconnect’ as they cannot afford to top up their meter.
27 February: Govt Urged To Ditch Hike As Cap Heads To £2,112 In July
Ofgem, the energy regulator, has announced that its price cap for the three months from April to June will be £3,280 a year for a dual fuel household paying by direct debit based on typical consumption. It currently stands at £4,279 a year.
The new cap will not be used to determine household bills because it will remain above the government’s energy price guarantee, introduced last October as the cap rocketed in response to rising wholesale prices.
At present, the government guarantee stands at £2,500 a year (for typical households). It will rise to £3,000 on 1 April, the same day the new Ofgem cap becomes effective. This increase in the guarantee means household bills will rise by 20%.
Charities are calling on the government to maintain the guarantee at £2,500 to avoid worsening the cost of living crisis for consumers already struggling to pay their bills.
The impact of energy bills on household budgets will also worsen from April because the final payments of the £400 government energy bill discount scheme – spread over six monthly payments from October 2022 to March 2023 – will have been paid.
The cost to taxpayers of subsidising household energy bills is effectively the difference between the guarantee and the Ofgem cap. With the gap narrowing as wholesale prices fall, campaigners say the impact on the public purse is reducing to the point where it is reasonable to maintain the guarantee at £2,500.
They further point to predictions that the Ofgem cap will fall further in July when it is next revised. Analyst Cornwall Insight, which has a track record of accurately predicting movements in the cap (it estimated £3,294 for the April figure, just £14 out), says July’s cap will be £2,112.
It further predicts that the cap will be largely unchanged in October, at £2,118. It bases its forecasts on analysis of current and ‘forward’ wholesale prices, the latter being the cost of securing future supplies.
Once the cap falls below the level of the guarantee, the guarantee will cease to operate and suppliers will be obliged to charge at or below the level of the cap.
That means the government would only need to maintain the cap at £2,500 for three extra months, after which the need to subsidise bills would end.
An announcement about future government support for domestic and commercial energy is expected in the Budget on 15 March.
There have been suggestions that the downward trend in wholesale prices could see a return of tariff switching as suppliers reintroduce competitive fixed-price deals.
21 February: Govt Tells Regulator Not To ‘Pull Any Punches’
Regulator Ofgem is calling for suppliers to consider offering compensation and the removal of prepayment meters (PPMs) where they have been wrongly installed in customers’ homes, writes Candiece Cyrus.
Earlier this month, The Times revealed that British Gas has used excessive and inappropriate means when force-fitting prepayment meters, including deploying locksmiths to gain entry to the properties of vulnerable customers.
In response, Ofgem launched an investigation into the British Gas case and a review of prepayment meter installations in general.
Following intervention by Grant Shapps MP, energy secretary, suppliers agreed to pause the installation of prepayment meters until 31 March.
Commenting on Ofgem’s investigation, Mr Shapps said on Twitter: “Forcing the vulnerable onto prepayment meters is a scandal. I’ve been clear I want to see redress for those wronged.
“It is right that Ofgem is now investigating. Tough action must be taken where this has happened – it cannot afford to pull any punches.”
Ofgem says firms should use the time until the end of March “to review all of their recent forced and remotely switched PPM installations, and consider if any need to be reversed, and compensation offered where the strict rules have not been followed.”
Remote switching involves altering a smart meter electronically so that it works on a prepayment rather than credit basis.
Industry rules allow energy suppliers to force-fit prepayment meters once they have secured a court warrant. However, Ofgem states this should always be a last resort and should not be carried out if the customer is deemed vulnerable, which includes having children under five, being pregnant, being of pension age or having a disability or mental health condition.
Jonathan Brearley, Ofgem’s chief executive, says suppliers could face fines if systemic problems are found with their PPM practices.
As part of its review, which will be complete by April, Ofgem will look into what further protections energy customers may need surrounding prepayment meter installation, and where the need for customers to be moved onto prepayment plans can be reduced.
As part of its British Gas investigation it said it will assess whether the supplier has:
- provided its struggling customers with support, such as advice on how to reduce costs, signposting to sources of debt assistance and alternative repayment options, before choosing to put them on prepayment plans
- assessed whether it is safe and reasonably practicable to install a prepayment meter and whether a customer’s mental capacity and/or psychological state could cause the installation of a prepayment meter to be severely traumatic, or make their condition significantly worse
- taken all reasonable steps to ensure that each representative who visits a customer has the necessary skills, including the ability to assess the safety and practicability of installing a prepayment meter, and assess the customer’s mental capacity and psychological state on the doorstep
- ensured all representatives are fit and proper to enter a customer’s home
- treated customers fairly in accordance with Ofgem’s Standards of Conduct, and that its representatives behave in a fair, honest, transparent, appropriate and professional manner.
20 February: July Cap To Undercut Govt Price Guarantee
Cornwall Insight has further revised its estimate of the April iteration of the Ofgem energy price cap, which will be confirmed by the regulator a week today.
The analyst is predicting the cap will be £3,294. As this will be above the level of the government’s energy price guarantee of £3,000 a year for typical household bills, the cap will not govern what people pay.
The price guarantee is currently £2,500, rising to £3,000 on 1 April – a 20% increase. March will also see the end of the government’s phased £400 energy bill rebate scheme, adding further pressure to household budgets.
Cornwall Insight says the quarterly-updated cap will fall below the level of the price guarantee in July, saying the cap will then stand at £2,153.34. The forecast for October’s cap is £2,161.05.
Once the cap is below the guarantee, the government will no longer subsidise energy bills and suppliers will be required to offer tariffs at or below the level of the cap.
This raises the prospect of customers being able to switch to competitive deals if suppliers decide to create attractive fixed-term deals to capture market share.
However, it should be recalled that, even at £2,150 or thereabouts, the cap in July would still be almost £1,200 higher than in July 2022, when it stood at £1,971, again for households with average consumption.
Falls in the level of the cap reflect the lower prices energy firms are paying on wholesale market to secure future supplies. Prices are falling as countries source alternatives to Russian natural gas.
The cap will remain high for the immediate future to reflect the higher prices already paid by firms for the fuel they are supplying at the moment and until the summer.
15 February: Wholesale Price Falls To Feed Through To Bills
Falling wholesale prices could see the return of competition to the energy market from July, enabling customers to switch to cheaper deals, according to industry analyst Cornwall Insight.
In the years leading up to 2021, before the current energy crisis, around six million households a year switched suppliers, usually moving to fixed-rate tariffs lasting 12 or 24 months.
These were priced below standard variable rate tariffs (SVTs), the price of which was capped from 2019 onwards by a price cap set by the market regulator, Ofgem.
However, as wholesale prices soared in the latter half of 2021 and into 2022, the availability of cheap fixes dried up, and SVTs became the least-expensive option. With all suppliers pricing their SVTs at or close to the level of the Ofgem cap, the incentive to switch disappeared.
Since then, as the cap increased in response to soaring wholesale prices, the government introduced the Energy Price Guarantee (EPG), which is lower than the Ofgem cap, and which means prices for each unit of energy used are held at a given level for all domestic customers.
Under the EPG, the average annual bill for a typical household stands at £2,500. If the cap were still in place, this figure would be £4,279.
However, the EPG average bill will rise to £3,000 a year from April as the government trims back support. This will still be below the predicted price cap at that point, but in July, the cap is expected to dip to around £2,360 – and energy bills will then be required to reflect the level of the cap, not the EPG.
Cornwall Insight commented: “There is a good chance that suppliers will be able to offer fixed tariffs that compete with the capped government prices, reviving the benefits of switching suppliers.
“In examining the potential for switching, we note that if the wholesale market volatility, as experienced in 2022, returns, it could become uneconomic or impractical for suppliers to offer the kind of competitive tariffs in question.
“However, the current market conditions suggest there may be room for households to have a wider engagement in the energy market than they have in recent times.”
Price differentials between suppliers may emerge because firms buy bulk energy supplies in advance, at different times and prices. Some may also choose to undercut rivals in order to secure market share.
10 February: Energy Secretary Says More Needs To Be Done
All energy suppliers have agreed to stop forcefully installing prepayment meters in the homes of vulnerable customers. The move comes in response to demands from the government for change in their practices (see story below), writes Candiece Cyrus.
Grant Shapps MP, energy secretary, wrote to suppliers last Sunday, requesting that they tell him how they are supporting their customers and how many warrants they have each sought to forcibly install prepayment meters.
He set suppliers a deadline of last Tuesday to tell him how they would rectify situations for customers who should not have had prepayment meters installed, including the payment of compensation.
Today’s announcement on the cessation of forced installations follows Lord Justice Edis issuing directions to magistrates courts to stop approving warrants earlier this week.
However, Mr Shapps says more needs to be done by industry regulator Ofgem to oversee energy firms’ treatment of their customers. Ofgem said it will ask customers about their experiences, rather than just suppliers.
While all suppliers responded to Mr Shapps letter, with several outlining means of redress for their customers, such as compensation or replacing a prepayment meter with a credit meter, he said a number failed to offer any details of their plans.
Ofgem requires suppliers to support vulnerable customers who are struggling with their bills by, for example, offering affordable repayment plans, and only putting them on prepayment meters as a last resort.
Vulnerable customers include the elderly, disabled, and parents with young children.
A recent report in The Times revealed that British Gas has used locksmiths to gain entry into properties in order to fit prepayment meters because the occupants had fallen into arrears on their credit meter.
Suppliers have also remotely switched smart meters to prepayment mode.
Charity Citizens Advice has also been calling for a ban on forced installations since last summer after the number of people it saw who could not top up their prepayment meter surpassed levels for the previous 10 years combined.
Mr Shapps says he will “continue to stand up for vulnerable customers who have had their homes invaded, and to ensure that this cannot happen in future.”
He added: “People will have understandably been shocked and appalled at how vulnerable people’s homes have been invaded and prepayment meters installed against their wishes – and suppliers are only at the beginning of correcting this abhorrent behaviour.
“I am angered by the fact some have so freely moved vulnerable customers onto prepayment meters, without a proper plan to take remedial action where there has been a breach of the rules. So, I have only received half the picture as it still doesn’t include enough action to offer redress to those who have been so appallingly treated.”
7 February: Grant Shapps Pledges To Bring Down Bills
Prime Minister Rishi Sunak has split the Department for Business, Energy and Industrial Strategy (BEIS) into three new government departments, writes Candiece Cyrus.
He has created the Department for Energy Security and Net Zero, alongside the Department for Science, Innovation and Technology, and the Department for Business and Trade.
He is also ‘refocusing’ the Department for Culture, Media, and Sport.
Grant Shapps MP, has moved from being business, energy and industrial strategy secretary, to the role of secretary of state for energy security and net zero.
Following his appointment, Mr Shapps tweeted: “My focus will be securing our long-term energy supply, bringing down bills and thereby helping to halve inflation.”
On Sunday, Mr Shapps gave energy firms until the end of today (Tuesday) to tell him what action they will take if they are found to have wrongfully installed prepayment meters in the homes of vulnerable customers.
The science, innovation and technology secretary is Michelle Donelan MP. She was culture secretary.
The current international trade secretary, Kemi Badenoch MP, has been appointed business and trade secretary. She remains president of the Board of Trade, and minister for women and equalities.
Lucy Frazer KC MP is new Secretary of State for Culture, Media, and Sport, having been a Minister of State for Housing and Planning.
6 February: Falling Wholesale Prices Fuel Optimistic Cap Forecast
Analysts Cornwall Insight has released revised energy price cap forecasts for the remainder of the year which, if accurate, will see the cap undercut the government’s energy price guarantee, writes Candiece Cyrus.
The price cap was introduced in 2019, by industry regulator Ofgem, to limit the amount energy suppliers can charge households per unit of energy and for associated standing charges.
Updated on a quarterly basis, in response to wholesale energy costs, it now stands at £4,279 for the period January – March 2023.
However, thanks to the government’s guarantee, which subsidises prices to an average of £2,500 per annum until the end of March, the cap is not currently in use for domestic consumers – Cornwall Insight’s figure demonstrates what a household with average consumption would pay if it were.
The Guarantee level increases to £3,000 in April and will last for 12 months.
Cornwall Insight predicts that the cap will fall to £3,338 in April, before falling further to almost £2,362 in July. This would take the cap below the guarantee, rendering the latter redundant at that point – household bills would then be determined by the cap. However, they would remain far in excess of the £1,271 average in place 12 months ago.
In October, the analysts expect the cap to stand at £2,389, still lower than the Guarantee.
Forecasts for the cap are reducing as European countries previously dependent on Russia for natural gas source alternative energy supplies
Warmer temperatures also helped reduce demand for energy, thereby lowering wholesale prices.
5 February: Government seeks end to ‘abhorrent’ behaviour by suppliers over prepayment meters
Grant Shapps MP, energy secretary, has given energy suppliers a deadline of Tuesday to tell him what action they will take if it emerges they have wrongfully installed prepayment meters in the homes of vulnerable customers.
Mr Shapps favours the payment of compensation in such cases.
As reported below, British Gas has admitted fault in cases where vulnerable households, including those with small children or medical conditions, have not been treated fairly or with compassion.
News of the scandal, originally broken by The Times, includes reports of debt collectors breaking into homes to install prepayment meters. There are also reports of smart meters being switched to prepayment mode remotely by some suppliers.
Mr Shapps is angry that a number of reviews by the regulator, Ofgem, into the services provided by energy suppliers have not identified this unacceptable behaviour or other significant shortcomings, and have even given some companies a clean bill of health.
He has ordered Ofgem to toughen up on energy suppliers and investigate customer experience of how suppliers are performing, including setting up a new customer reporting system for households to pass on their own stories of how they are being treated.
Mr Shapps said: “I am appalled that vulnerable customers struggling with their energy bills have had their homes invaded and prepayment meters installed when there is a clear duty on suppliers to provide them with support.
“They need to refocus their efforts on their consumers, who are at the receiving end of this abhorrent behaviour.
“I’m also concerned the regulator is too easily having the wool pulled over its eyes by taking at face value what energy companies are telling it. It needs to listen to customers to make sure this treatment of vulnerable consumers doesn’t happen again.”
Last Thursday, several suppliers announced they would suspend forced installations after being pushed by Ofgem to pause the practice. But this time last week, Mr Shapps launched a crackdown on the mistreatment of energy users by suppliers, already asking them to voluntarily commit to stopping this practice.
3 February: British Gas At Centre Of Controversy
Regulator Ofgem has acted to quell mounting controversy over the forced installation of prepayment meters by energy firms, especially in households identified as ‘vulnerable’.
The move – which reportedly includes asking energy suppliers to suspend all forced installations immediately – follows an investigation by The Times which found that British Gas has used locksmiths to gain entry into properties so that meters could be changed.
Ofgem said: “These are extremely serious allegations from The Times. We are launching an urgent investigation into British Gas and we won’t hesitate to take firm enforcement action.
“It is unacceptable for any supplier to impose forced installations on vulnerable customers struggling to pay their bills before all other options have been exhausted and without carrying out thorough checks to ensure it is safe and practicable to do so.
“We have launched a major market-wide review investigating the rapid growth in prepayment meter installations and potential breaches of licences driving it.
“We are clear that suppliers must work hard to look after their customers at this time, especially those who are vulnerable. The energy crisis is no excuse for unacceptable behaviour towards any customer, particularly those in vulnerable circumstances.”
There are around 4.5 million households with prepayment meters in the UK. They are favoured by many landlords and are also used where customers are not able or do not want to pay in arrears for their energy usage through a monthly or quarterly bill.
However, prepayment meters are more expensive than credit meters because of the higher administration costs.
Where a customer with a credit meter falls into deep arrears, energy suppliers have been able to apply to the courts for a warrant to install a prepayment meter in order to prevent the arrears worsening.
But the alleged use of forced entry into properties occupied by vulnerable households by agents working on behalf of British Gas has sparked criticism that the entire system is flawed and open to abuse.
Graham Stuart MP, energy minister, has asked British Gas for assurance that its “completely unacceptable” behaviour will not be repeated.
He said via social media: “I want to see accountability at the very top of the company and an explanation of the personal role he [British Gas owner Centrica CEO Chris O’Shea] will take to fix these very serious cultural issues and regain the public’s trust.
“Most crucially of all I want to see those impacted by this identified and redress provided. While wrongdoing cannot be undone, substantial compensation can and should be given.
“British Gas has assured me that this process has begun and I will be monitoring matters extremely closely to make sure justice prevails.”
Mr O’Shea told the BBC that British Gas has suspended the practice of forcing the installation of prepayment meters.
Ofgem has already announced a review of forced prepayment meter installation and the remote switching of smart meters from credit to prepayment operation.
The regulator has also published a review of customer service and complaints performance from information submitted by 17 energy suppliers. It found:
- weak policies and pathways for customer service journey, including incomplete communications to customers in relation to complaints
- inconsistent scripts for staff handling complex calls
- customers left waiting for hours on the phone on several occasions
- phone calls not picked up and slow responses on written customer contacts
- up to 50% of customers giving up and hanging up calls as not answered
- high rates of customer complaints upheld by the Energy Ombudsman
- incomplete management information being used to monitor performance
- weaknesses in customer service agents’ training and/or quality control mechanisms.
Additionally, Ofgem found the following about specific companies:
- severe weaknesses in customer service at E.ON, resulting in specific enforcement action being issued
- moderate weaknesses at 11 suppliers (British Gas, E Gas & Electricity, EDF, Good Energy, Outfox the Market, OVO, ScottishPower, SO Energy, Utilita, Utility Warehouse and Tru Energy)
- minor weaknesses at five suppliers (Bulb, Ecotricity, Green Energy, Shell and Octopus).
Ofgem was unable to identify any suppliers with no weaknesses. It has started compliance engagement on areas needing improvement.
24 January: Households Earn Credit By Pausing Consumption
Households with smart meters will again have the opportunity to earn credit against their energy bills tonight by taking part in the Demand Flexibility Service run by National Grid and participating energy suppliers, writes Kevin Pratt.
The service, which is designed to reduce energy consumption at peak times and underpin security of supply, will last from 4:30pm to 6pm. Last night (Monday) saw the scheme operate for the first time after a series of trials last year – it ran from 5pm to 6pm, with an estimated one million households taking part.
The financial reward – usually paid as a discount off the next bill – is determined by how much energy is not used compared to normal during the period in question. A household reducing consumption by one kilowatt hour could be in line for savings of £3 – £6, according to National Grid, although it is up to individual suppliers to determine the actual amounts.
To take part, you need a smart meter, and your energy supplier must be signed up to the scheme – it will contact you the day before the Service operates if this is the case.
If your supplier is not participating, you may be able to use an independent company that will draw the relevant details from your meter via an app. Details of the participants can be found here. Both domestic and business consumers are eligible.
The scheme is not primarily intended to reduce overall demand across England, Scotland and Wales, where it operates. Rather, the intention is to smooth the spike in demand at peak times and ease pressure on the grid, thus avoiding power outages.
National Grid says it is running the scheme as a precaution and that people should not be worried about power cuts. Industry observers say the issue has arisen for a number of reasons, including the UK’s lack of storage capacity for natural gas, which is used to generate electricity, and calm weather conditions, which have reduced output from windfarms.
The Grid is also considering bringing mothballed coal-fired power stations back into operation as further back-up, especially if the cold snap continues. At present, the ability to trigger the demand management service is scheduled to run until the end of March.
23 January: National Grid ‘Power Hour’ Slated For Tonight
Grant Shapps MP, business and energy secretary has written to energy suppliers telling them to stop forcibly moving consumers onto prepayment meters without providing adequate support to those in difficulty.
Mr Shapps is asking for voluntary commitment to stopping this practice. He is also demanding that suppliers share the number of court-issued warrants they’ve applied for in recent months, which enable them to switch a household’s meter.
The government says suppliers should be making greater efforts to help consumers in financial difficulties before forcing a switch to a prepayment arrangement. Statistics show that many households who are forcibly switched subsequently see their energy cut off because they do not have the money to top up their new meter.
National Grid’s Demand Flexibility Service will be used for the first time this evening between 5pm and 6pm because of an expected spike in demand linked to the cold weather. It said: “This does not mean electricity supplies are at risk and people should not be worried. These are precautionary measures to maintain the buffer of spare capacity we need.”
The service allows customers of participating energy suppliers to be financially rewarded if they reduce their electricity usage during peak hours. Customers – who need to have a smart meter – are contacted by their supplier in advance so they can participate. The amount earned by participants could reach £10 depending on how much they reduce their normal power usage by during the hour.
National Grid has also asked generators to fire up coal-fired power stations to boost security of supply.
Mr Shapps believes firms could offer additional credit, debt forgiveness or debt advice. He has asked suppliers to discuss possible action they can take to support customers and avoid forced fitting.
He says courts are being “overwhelmed” with applications for warrants, with reports that large batches are being approved in a matter of minutes. The government aims to ensure that the process by which suppliers bring these cases to court is fair, transparent and supports vulnerable customers.
Mr Shapps said: “Suppliers are clearly jumping the gun and moving at-risk customers onto prepayment meters before offering them the support they are entitled to – I simply cannot believe that every possible alternative has been exhausted in all these cases.
“I am deeply concerned to see reports of customers being switched to prepayment meters against their will, with some disconnected from supply – and quite literally left in the dark.
“Rather than immediately reaching for a new way to extract money out of customers, I want suppliers to stop this practice and lend a more sympathetic ear, offering the kind of forbearance and support that a vulnerable customer struggling to pay should be able to expect.”
The government has resisted calls for a moratorium on forced prepayment switching, saying this could lead to an increase in bailiff action as suppliers try to recover debt from households with unpaid arrears.
Some energy suppliers are already taking steps to support consumers such as by pausing remote switching of smart meters to prepayment mode or providing additional credit to customers struggling to pay. The government wants all suppliers to increase this kind of support to avoid resorting to forced fitting.
Suppliers are also being asked to work harder to ensure households redeem vouchers issued under the government’s Energy Bills Support Scheme so that they can have cash knocked off their energy bills.
The government says 71% of vouchers have been redeemed so far and has issued a list of supplier redemption rates showing which firms are meeting their responsibilities and which ones need to do more.
Topping the list for most vouchers redeemed is E Gas & Electricity with 85%, followed by Bulb with 79%, with Good Energy, Utilita and Scottish Power at the bottom of the list. The government has called on these suppliers to ensure their prepayment customers are clear on how they can redeem their vouchers.
There will be a summit of government, suppliers, the regulator Ofgem, trade body Energy UK and charity Citizens Advice in the coming days. Under discussion will be a plan to tackle what is called “bad behaviour” by energy suppliers. In addition to publishing supplier voucher redemption rates, this comprises:
- a call for suppliers to voluntarily stop the practice of forced prepayment switching as the answer to households struggling to pay bills and make greater effort to help the most vulnerable
- request of the release of supplier data on the number of warrant applications they have made to forcibly enter homes to install meters
- launch of a public information campaign reminding eligible consumers to redeem their Energy Bills Support Scheme vouchers
- coordination with Ofgem to ensure the regulator takes a more robust approach to the protection of vulnerable customers and conducts a review to make sure suppliers are complying with rules.
Ofgem said it does not have the power to ban forced prepayment meter installation but it has committed to reviewing:
- self-disconnections (when customers on prepayment plans cannot afford to top-up their meter and are left without energy)
- remote switching of smart meters to prepay mode
- forced meter installations
- the process suppliers use when deciding whether to put households on prepayment meters.
It said where it finds that firms have not taken due care it will take legal action. It is to review the rules around when a court warrant can be issued and the steps that should be taken first.
The regulator will also carry out what it terms a ‘serious assessment’ of the concept of a social tariff. This would be more affordable for financially disadvantaged customers, and has been put forward by industry figures as a way to tackle energy bill affordability issues.
Ofgem will consider how such a tariff would be administered, including how people would qualify and how any subsidy would be paid for, and by whom.
Jonathan Brearley, Ofgem’s chief executive, said: “If it [a social tariff] can be made to work, this could tackle the root cause of this issue and the distress that many customers are in this winter”.
19 January: Cornwall Insight Says Cap Could Fall To £2,200 In July
Market analyst Cornwall Insight has lowered its forecasts for the Ofgem energy price cap for the remainder of this year on the back of falling wholesale energy prices, writes Candiece Cyrus.
The cap on what suppliers can charge domestic customers for units of energy and standing charges is set by the regulator every three months with reference to prevailing wholesale energy prices. For the period January – March 2023 it stands at £4,279.
Cornwall Insight forecasts that it will first drop from its current level to £3,208 in April, before dropping further to £2,201 in July and then seeing a small rise to £2,241 in October.
The rapidly rising level of the cap in the latter half of 2022 prompted the government to introduce the Energy Price Guarantee in October. At present, this undercuts the cap and means that annual bills for a household with average consumption are around £2,500 until April 2023, when the Guarantee ceiling is scheduled to rise to £3,000 for a further 12 months.
However, if and when the cap dips below the level of the Guarantee, the latter effectively becomes redundant, with suppliers required to adhere to the cap once more.
Ofgem commented: “While the Energy Price Guarantee continues to apply, this will be placed on top of consumer bills, and customers are charged either the EPG or price cap rate, depending on whichever rate is lower.
“In a circumstance where the price cap level falls below the EPG level, suppliers are still required not to overcharge customers more than the level of the price cap.”
Despite the revised predictions, the price cap will remain well above its level of £1,227 before the energy crisis took hold last year.
Dr Craig Lowrey, principal consultant at Cornwall Insight said: “We do not know what will happen over the coming months and there is a long way to go before anyone can be certain what the true unit rates will be beyond the summer.
“So, while declining wholesale markets and cap forecasts may be a reason to feel cheerful, nothing is guaranteed in this new European energy market. Reading too much, too early, into prices falling, could be just as risky as reading too much, too early into prices rising.
“Policy really needs to be ‘on notice’ of sudden changes, and both elastic and responsive in such an environment.”
12 January: Charity Calls For Moratorium On Further Forced Prepay Switches
Energy suppliers are continuing to force customers, including the disabled and those with long term health conditions, onto prepayment meters, according to Citizens Advice.
Under market rules, suppliers are not allowed to force the most vulnerable, such as the disabled, onto prepayment plans. The regulator, Ofgem, only allows such action as a last resort to recover debt, if the customer is not in a vulnerable situation. The regulator reminded suppliers to comply with the rule last October.
However, Citizens Advice says suppliers are moving disabled customers onto prepayment plans, and that a considerable number of disabled energy customers cannot afford to top up.
There are around 4.5 million prepayment meter households in the UK, with around 1.4 million
including a disabled person, or someone with a long term health-condition.
Citizens Advice says that, in the month following Ofgem’s warning in October, around a third of these – 470,000 households – were left with no energy as they were unable to top up.
More broadly, Citizens Advice estimates that 600,000 households were forced onto prepayment meters because they could not keep up with their energy bill payments in 2022. This includes suppliers remotely switching households using smart meters onto prepayment plans, without the need for manual installation of a new meter.
It estimates another 160,000 households could be forced onto prepayment meters by the end of this winter if no action is taken.
Overall, it found that 3.2 million households across the UK ran out of credit on their prepayment meter last year as they could not afford to top it up. The majority of these households (two million) could not afford to top up more than once, while almost a fifth (19%) spent at least 24 hours without gas or electricity.
In 2022, it says it saw more people who could not afford to top up their meter than in the last 10 years combined.
The charity is calling for a ban on forced prepayment meter installations until new protections are in place that prevent households from going without gas and electricity if they cannot afford credit.
Last week, the Resolution Foundation said that people with disabilities have been disproportionately affected by rises in energy costs.
The think tank’s Costly Differences report, which includes a YouGov survey of almost 8,000 working-age adults, including 2,000 who report long-term illness or disability, found that 48% of disabled respondents have had to cut back on energy use this winter.
10 January: Industry Body Warns Thousands Of Small Businesses Could Go Bust Following Change To Support Package
Thousands of companies are at risk of collapse following a government decision to cut financial support for their energy costs, business leaders have warned, writes Candiece Cyrus.
The government said it would be replacing its current support for businesses’ energy bills with a new Energy Bills Discount Scheme from 1 April 2022.
The Federation of Small Businesses (FSB) said: “While the new year should be a time of optimism and excitement, 2023 looks like the beginning of the end for tens of thousands of small businesses, which have been relying on government energy support to survive this winter.”
Instead of a cap on costs offered under the current Energy Bills Relief Scheme (EBRS), the new scheme – set to run until 31 March 2024 – offers a discount on the wholesale unit cost of energy.
As the discount only comes into play when wholesale energy costs exceed a given ‘floor price’, the support has been dismissed as “insignificant” by business representatives.
For most businesses, the maximum discount on electricity will be set at £19.61 per Megawatt hour (MWh) with a ‘price threshold’ of £302 per MWh.
For gas, the maximum discount will be £6.97 per MWh with a price threshold of £107 per MWh.
Businesses experiencing energy costs below these levels will not receive support.
Martin McTague, national chair of the FSB said: “For those struggling, the discount through the new version of the scheme is not material. Many small firms will not be able to survive on the pennies provided through the new version of the scheme.”
He added: “This is so out of touch. Two pence off a kWh of electricity and half a pence off gas is totally insignificant for small businesses, despite costing billions to the taxpayer.”
Businesses that depend heavily on energy, however, such as glass, steel and ceramic producers, will receive a bigger discount.
For electricity, this will be £89 per MWh with a price threshold of £185 per MWh – and, for gas, £40 per MWh with a price threshold of £99 per MWh.
The existing EBRS, which caps per-unit cost of energy, was introduced in October 2022 as a temporary six-month measure to protect businesses from soaring energy costs.
The government said that it had made clear that “such levels of support were time-limited” and were “intended as a bridge to allow businesses to adapt”. The current scheme will end as planned on 31 March 2022.
Mr McTague said: “The current EBRS scheme provides certainty for a small business owner over their rates, and has made a material difference to the survival of many small businesses. The replacement scheme will do neither.”
The announcement of the new scheme follows wholesale energy prices falling to levels similar to those before Russia’s invasion of Ukraine in February 2022 before sanctions on its gas exports caused energy prices to soar (see update below).
4 January: Gas Price At 12-Month Low But Consumers To Wait Months For Reductions
Wholesale gas prices are at levels last seen before Russia’s invasion of Ukraine in February 2022 pushed them to record highs last year, according to figures from data company Refinitiv, writes Candiece Cyrus.
This has prompted questions from consumer groups as to why household and business energy bills remain at high levels and do not reflect wholesale market developments. Industry figures say the cause is the practice of hedging, which sees suppliers buy stock months in advance.
The war in Ukraine and the resulting global sanctions on Russia’s gas exports caused energy bills to soar, prompting the UK government to introduce an Energy Price Guarantee (EPG) for domestic customers in October 2022.
Up to that point, typical household bills were limited by the price cap set by industry regulator Ofgem. But when it became clear that the cap would pass £3,500 a year for average bills, the government stepped in, introducing the EPG to limit typical annual bills to £2,500.
The new Ofgem cap, which took effect this month, stands at £4,279 a year for the average household. However, the EPG will remain at £2,500 until April, when it will be raised to £3,000 until March 2024.
The reduction in wholesale prices has come about in part because the EU is purchasing larger supplies of liquefied natural gas (LNG) as an alternative to Russian gas imports from countries such as the US and Qatar.
This, teamed with the fact that the UK and other European countries have made efforts to boost levels of stored gas in advance of the winter months, has caused wholesale gas prices to tumble.
Thanks to warmer temperatures in recent weeks, reduced demand for gas has caused prices to fall further.
Yesterday, Refinitiv, recorded the price of gas bought for delivery to the UK next month as €72.40 per megawatt hour. When Russia invaded Ukraine on 24 February 2022, the price of gas leapt to €134.31 per megawatt hour, and reached a peak of €339.19 per megawatt hour on 26 August last year.
Yuriy Onyshkiv, senior analyst at Refinitiv Gas Research, said: “A starkly warm December has even helped some nations to resume storage injections for almost two weeks at the end of December – an unprecedented development for winter when withdrawals normally prevail.
“All of this provided supply confidence to the market and weighed on prices.”
Ofgem requires suppliers to purchase wholesale energy weeks and months in advance to guarantee supply, so today’s retail prices reflect the high costs of last autumn. Today’s lower wholesale costs will not feed through to household bills until later this year.
Today, analyst Cornwall Insight announced its latest Ofgem energy price cap forecast, taking into account falling prices.
It predicts the cap, which is adjusted on a quarterly basis, will fall to £3,545 a year from £4,279 a year in April, but will drop to £2,800 a year in July. As a result, the EPG, which is due to increase to £3,000 a year in April, would effectively become redundant from July onwards.
In October, Cornwall Insight predicts the cap will rise marginally to £2,835 a year.
Financial services company, Investec, predicts similar figures: £3,458 a year in April, £2,640 a year in July, and £2,704 a year in October.
21 December: Bulb Members To Transfer Automatically To Octopus
Octopus has completed its takeover of Bulb, the failed energy supplier forced into special administration in November 2021, writes Kevin Pratt.
The special administration was set up by the government and the energy regulator, Ofgem, to protect customers in the event of a large supplier such as Bulb going bust. With 1.7 million customers, Bulb was too much of a liability for other energy companies to absorb during the peak of the energy crisis, which saw around 30 suppliers close their doors in the space of 18 months.
Suppliers went out of business because wholesale energy prices were higher than they were able to charge their customers because of the Ofgem price cap, which was in effect at the time.
Bulb’s special administration arrangement is said to have cost up to £4 billion, with the ultimate bill being met by taxpayers and by a levy on energy bills.
On its customer blog, Bulb says: “The sale of Bulb’s energy supply business to Octopus Energy is now complete. Our members don’t need to do anything.
“When it’s time to move to Octopus, you’ll be given new account details. Octopus will send you all the details about how to set up an online account and download their app. Until then, your Bulb account number will remain the same and you can keep using your Bulb app and account.
“If you’re a former member with a debit or credit balance in your account, your energy supplier will not be affected and this debit or credit balance will be transferred.”
13 December: Vulnerable Customers To Receive £20 Credit After Supplier Fails To Provide Support
Over 25,000 prepayment customers of Utilita are to receive £20 meter credits as compensation for not receiving support when they first requested it, writes Candiece Cyrus.
Energy firms are required by the regulator, Ofgem, to offer support to vulnerable customers, such as the disabled and elderly, if they have no other means of topping up their meter.
Ofgem says Utilita did not take individual circumstances into consideration when deciding whether or not to provide Additional Support Credits for customers struggling to top-up their prepayment meters.
The supplier will also pay £321,740 into the Energy Redress Fund, which supports energy customers in vulnerable situations.
Ofgem imposed the compensation payments after reviewing recorded calls between Utilita employees and customers, along with the firm’s training materials, procedures and policies.
Cathryn Scott, Ofgem’s director for enforcement & emerging issues, said: “Prepayment meters are currently relied on by around four million UK households, and the current cost of living issue is placing pressure on many households, which in turn is causing more people to require additional support credits to top-up for their prepayment meters.
“While Utilita has moved swiftly to correct these issues and agreed to compensate those affected, this action should serve as a reminder to other suppliers to go further to ensure vulnerable groups are getting the support they need, particularly during the colder winter months.”
Anyone receiving a support credit from their supplier is required to pay it back when they next top-up their meter. If this is not possible, they should be offered a manageable repayment plan.
30 November: £22.2 Grid Upgrade Billion Plan Will Meet Demand From Electric Vehicles
Industry regulator Ofgem has confirmed a £22.2 billion five-year investment package designed to make the UK electricity grid cheaper, cleaner and more reliable, writes Candiece Cyrus.
The investment in infrastructure over the period from 1 April 2023 to 31 March 2028 will be delivered without an increase in network charges on customer bills. Households will continue to pay £100 a year.
Instead of passing the costs on to households, Ofgem expects the six companies that run the UK’s electricity distribution network – Electricity North West Limited, Northern Power Grid, National Grid Electricity Distribution, UK Power Networks, SP Energy Networks, and Scottish and Southern Electricity Networks – to lower returns to their investors and work on making their operations more efficient.
The regulator also expects the companies to use the investment to drive the UK’s move away from its high dependence on imported fossil fuels, including natural gas.
To achieve this, the regulator said changes in the way energy is used and stored will be required to allow for greener sources such as wind, solar and wave power.
Ofgem says the introduction of an efficient, greener grid will anticipate increased demand for electricity from the higher number of heat pumps being used in homes and an increase in electric vehicles (EV).
The sale of new petrol and diesel cars will be banned in the UK from 2030.by the end of the decade.
Ofgem said ‘smart’ and digital technologies will give consumers more control over their energy usage, enabling them to take advantage of updated off-peak rates or avoid peak prices. Electricity prices will vary more frequently to reflect fluctuations in generation from weather-dependent renewables.
Households will also be able to sell electricity back to the grid during periods when energy generation is low, from sources such as EV batteries.
Akshay Kaul, Ofgem interim director, infrastructure and security of supply group, said: “The economics of energy have shifted, with home-grown cleaner renewables like wind and solar energy proving cheaper than costly imported gas. Together with more nuclear and potentially hydrogen fuelled power, these renewables will contribute to a lower carbon energy mix, better protected from geopolitical events and energy price shocks.”
Gillian Cooper, head of energy policy for Citizens Advice, said: “Networks have been allowed to make excessive profits for far too long. In the middle of a cost-of-living crisis, Ofgem is right to challenge them to operate as efficiently as possible, which will help lower people’s bills.
“Today’s announcement shows some progress in getting better value for money for consumers. It should also mean networks can reinforce key infrastructure so there is the capacity to connect electric vehicles, heat pumps and wind-farms, helping to deliver the net-zero transition.
“However, network profits will still be too high and targets too easy. We believe Ofgem could have gone further and cut at least £1.5 billion more off people’s bills.”
29 November: Tips Designed To Reduce Consumption And Cut Bills
The government is giving an £18 million boost to its Help for Households campaign to encourage people to save energy and cut their bills, writes Candiece Cyrus.
The £18 million campaign includes energy saving tips , such as draught-proofing windows and doors, reducing a boiler’s water flow temperature, and turning down radiators in rooms that are not being used.
The government says the campaign will help the UK reach its target to reduce energy demand by 15% by 2030. It will also target the vulnerable, such as pensioners and the disabled, with advice on how they can safely make cost-effective changes to their energy consumption this winter and beyond.
Grant Shapps, business secretary, said: “Our new public information campaign will give people the tools they need to reduce their energy use while keeping warm this winter.”
Gillian Cooper, head of energy policy for Citizens Advice, said: “People need clear, consistent advice on how to safely reduce their energy use. We look forward to seeing how the government will ensure everyone has the information they need to do this.
“But this is only part of the solution to the financial pressures people are facing. Some we’re helping are making desperate choices to keep bills down – like turning the heating off despite having a health condition which means they need to keep warm.
“An energy saving campaign has to go hand-in-hand with continued financial support for people at the sharp end of this crisis.”
28 November: Government Wants Bills To Reflect Usage
Grant Shapps MP, business secretary, has written to energy firms warning them not to over-estimate charges for customers on direct debits, writes Candiece Cyrus.
In the letter sent at the weekend, Mr Shapps said: “It is critical that consumers are able to manage their bills effectively, and direct debit can be an efficient way for families to smooth their energy costs over the year.
“It is in all our interests that when consumers take sensible steps to reduce their own bills, such as reducing their boiler flow temperature or making their homes more energy efficient, that they are able to see an impact in their bills.
“I am very keen that all suppliers find a way to make their systems more responsive to these positive changes in consumer behaviour and have asked Ofgem to report to me on how this can be achieved.
“With other costs increasing for households, it is critical that we do what we can to help. I am interested to understand how you intend to ensure that your Direct Debit system does not over-estimate charging.”
While direct debit is the least expensive way to pay for energy bills, suppliers can over-estimate charges because they are usually based on an estimate of how much a household will use over a year.
Energy customers should provide their suppliers with regular energy readings to ensure their bills reflect the gas and electricity they are using.
Industry regulator Ofgem reviewed how suppliers adjusted customers’ direct debits earlier this year and found 17 large firms had ‘moderate to severe weaknesses’ in their processes. See 13 July update below.
Ofgem said it was engaging with the firms to drive improvements to procedures and reassess customer direct debits where necessary.
Energy customers can challenge their supplier if it increases their direct debit payment amount. They should ask for the meter readings it used and check that they are the same as those on their bills. They can claim back money owed if they have been overcharged, via a refund, a reduced direct debit or as credit on their account.
28 November: ECO+ Initiative Targets Energy-Inefficient Housing Stock And Vulnerable Households
The government is launching a £1 billion scheme to fund home insulation for the least energy-efficient households, which should save those eligible up to £310 a year in energy costs, writes Candiece Cyrus.
The ECO+ scheme, which will run from spring 2023 to March 2026, will target households with an Energy Performance Certificate (EPC) rating of D or below, and those in the lower council tax bands, reportedly up to and including Band D.
This includes households which do not receive government support under existing schemes, such as ECO/ECO4, which only provides grants to those who are in social housing, on a low-income, are fuel poor and who need support to carry out energy-efficient upgrades to their homes.
Twenty percent of funding will also go towards the most vulnerable energy customers, such as those on means-tested benefits and those in fuel poverty.
EPCs show how energy efficient a building is, using a rating from A (very efficient) to G (inefficient). Energy customers are considered fuel poor if their home has an EPC rating of D or below and their residual income falls below the official poverty line once they have paid to heat their home.
Jeremy Hunt, Chancellor of the Exchequer, said: “In the longer term, we need to make Britain more energy independent by generating more clean, affordable, home-grown power, but we also need more efficient homes and buildings.
“Our new ECO+ scheme will help hundreds of thousands of people across the UK to better insulate their homes to reduce consumption, with the added benefit of saving families hundreds of pounds each year.”
25 November: Ofgem Reforms Aim To Prevent Expensive Corporate Failures
Industry regulator Ofgem has launched a package of reforms to reduce the risk of energy suppliers folding in volatile market conditions, writes Candiece Cyrus.
Ofgem wants to protect energy customers by ensuring firms are financially stable. It is setting a minimum amount of money suppliers must hold in the bank to make them better able to withstand market shocks.
Thirty energy suppliers have gone bust since the start of the current energy market crisis in August 2021, which was triggered by a rise in wholesale energy prices. This resulted in Ofgem having to move millions of customers to new firms at a cost to bill payers, estimated by the National Audit Office (NAO), of £2.7 billion.
The largest failed supplier, Bulb, was placed in special administration in November 2021 because no other firm was willing or able to take on its 1.7 million customer base.
After protracted negotiations, it was agreed that Bulb customers will now move to energy supplier Octopus (see 29 October update). The cost of special administration has been put at £3 billion, with bill payers again picking up the tab.
To forestall further corporate failures, Ofgem has reinforced restrictions on how suppliers can use customer credit balances after finding that some firms had used money in customer accounts to fund their business operations.
Jonathan Brearley, Ofgem’s chief executive, conceded this summer that customer balances “are used by some suppliers like an interest-free company credit card.”
The regulator will also ensure that money intended to be spent by suppliers on renewable energy will be ringfenced for that purpose.
Mr Brearley said: “The energy crisis has had a profound impact on the sector, its business models, our approach to its regulation, and the way we think about risk.
“These proposals will provide protections, checks and balances for consumers, suppliers and the entire sector to create a more stable market. We want suppliers to be able to be innovative and dynamic, while also making sure they are financially stable, and that customers’ money is protected.”
Gillian Cooper, head of energy policy for Citizens Advice, said: “Ofgem must ensure people never again experience the chaos and cost of multiple suppliers going bust.
“It’s essential that these proposals lead to concrete change that is felt by customers. The only way that will happen is if these new rules are enforced.
24 November: Govt Price Guarantee Over-Rides Cap Increase
Consumers should not interpret today’s announcement about a steep increase in the Ofgem energy price cap as an indication their bills will rise.
The energy regulator has confirmed that its cap will be set at £4,279 for three months from 1 January 2023 for an average household with typical consumption paying by direct debit. The current figure is £3,549.
However, bills will continue to be limited by the government’s energy price guarantee, which was brought in on 1 October.
This limits the average household annual bill to £2,500 for the period up to 31 March 2023. Ofgem says: “The energy price cap level indicates how much consumers on their supplier’s basic tariff would pay if the price guarantee were not in place.”
It added: “There is no immediate action for consumers to take as a result of today’s announcement.”
The cap is calculated with reference to wholesale energy prices and reflects how much companies are paying to secure supplies. The size of the cap determines how much the government must contribute to bring bills down to an average of £2,500.
From 1 April, the price guarantee will be set at £3,000 a year for average consumption households, regardless of the price cap effective at that point. Ofgem will announce this figure on 27 February.
Under current plans, the government will withdraw its price guarantee on 31 March 2024.
The price guarantee does not put a ceiling on bills. It limits the amount that can be charged per unit of gas and electricity and sets the standing charge for each property. Actual bills will always be determined by the amount of energy used.
22 November: Regulator Wants Action Ahead Of ‘Challenging’ Winter
Industry regulator Ofgem wants UK energy firms to do more to help ‘vulnerable’ customers such as those of state pension age and those who are disabled, pregnant or living with a mental health condition, writes Candiece Cyrus.
Its latest review found five energy suppliers – Good Energy, Outfox, SO Energy, TruEnergy and Utilita – to be the worst performing with regard to how they identify vulnerable customers and whether they are adding them to the Priority Services Register, which provides additional support to customers who need it.
Another five firms – E (Gas & Electricity), Ecotricity, Green Energy UK, Octopus and Shell – were viewed as having ‘moderate weaknesses’ in this regard, while seven – British Gas, Bulb, EDF, E.ON, Ovo, Scottish Power and Utility Warehouse – were seen as having ‘minor weaknesses’.
Energy customers should be treated as vulnerable by their suppliers if they:
- are of state pension age
- are disabled
- have a hearing or sight condition
- have a long-term medical condition
- are recovering from an injury
- have a mental health condition
- are pregnant
- have young children
- have extra communication needs (such as not speaking/reading English well)
- use medical equipment that requires a power supply
- have poor/no sense of smell
- would struggle to answer the door
- would struggle to get help in an emergency.
Customers on the Priority Services Register may qualify for help such as free gas safety checks. If they have difficulty seeing, their supplier can send their account information and bills in large print or braille. If they’re on a prepayment meter, their supplier can ensure it’s safely accessible.
Customers can check exactly what support is available by contacting their supplier.
Ofgem also identified good practice from some firms, such as offering their customers cash grants towards energy bills. Many firms have also signed up to trade body Energy UK’s Vulnerability Commitment, which aims to improve support provision in this area.
Neil Lawrence at Ofgem said: “We welcome the cooperation from suppliers and action taken so far, and, although we are seeing some very good practice in parts of the industry, we can see there is still much more to be done.
“It’s going to be a very challenging winter for everyone, and customers must be confident they are getting the help and support they need. My message to suppliers today is simple – be proactive. Help your customers to know what support is available, and then deliver it.”
Gillian Cooper, head of energy policy at Citizens Advice, said: “Given the enormous pressures facing people this winter, energy suppliers should be doing everything in their power to identify and support struggling customers.
“Citizens Advice sees day in, day out the heartbreaking consequences when this support falls short. People cutting back on food and essentials to cover energy debts and living in cold and dark homes when they’ve simply run out of money to top up their meter.
“Ofgem is right to hold energy companies to task, it must now ensure this review leads to concrete action.”
4 November: Smart Meters Needed To Join Energy Saving Scheme To Fight Blackouts
Households and businesses with smart meters could be rewarded with discounts on their bills this winter if they reduce their electricity consumption during peak hours, under a scheme launched in England, Scotland and Wales today, writes Candiece Cyrus.
The Demand Flexibility Service, devised by National Grid Electricity System Operator (ESO) and approved by regulator Ofgem, will offer discounts which could total up to £100 for households, based on them receiving £3 per Kilowatt-hour and more for businesses.
Energy customers will have to be with a participating supplier. Octopus, which last weekend took over the customer base of failed firm Bulb (see story below) has already confirmed that it will be running the scheme, having trialled it earlier this year.
Other firms have been in consultation with the ESO to launch the service for their customers.
The firms will need to monitor electricity usage in real time, which means only energy customers on smart meters that can provide half-hourly readings will be able to participate.
The scheme will start with 12 ‘test’ days between 3 November and 31 March 2022. Participants will be given 24 hours’ notice to reduce their electricity consumption for an hour between 4pm and 7pm on weekdays.
Customers who change their usage, for example by using their washing machine or dishwasher at alternative times, will receive a discount.
The ESO will pay energy suppliers offering the service a minimum of £3 for every kilowatt-hour (kWh) during the test periods. It is up to each firm to decide how much of the sum they will use as an incentive for their customers and how they will pass the discount on to them.
Fintan Slye, executive director of the ESO, said: “We are delighted Ofgem has approved the use of our Demand Flexibility Service this winter. It will help mitigate the potential risks the ESO has outlined in its Winter Outlook and will allow consumers to see a financial return for reducing their electricity use at peak times.”
The launch of the scheme follows a warning from the ESO last month that it may need to enforce power cuts if demand for energy outstrips supply this winter, as the global energy crisis continues.
The ESO is looking into how to extend the scheme to energy customers who are not on smart meters.
31 October: Millions Of October’s Vouchers Yet To Be Redeemed
Concern is growing about the high number of traditional prepayment meter customers who have yet to redeem their first voucher to support with energy costs under the government’s Energy Bill Support Scheme, writes Candiece Cyrus.
The Scheme provides a £400 discount on all household electricity bills between October 2022 and March 2023. For those with old-style prepay meters, this involves redeeming vouchers when topping-up cards or keys.
Customers should have received their October vouchers by now. Customers who have not yet received theirs should contact their energy provider.
In a report for the BBC, payment service PayPoint says it expected to redeem £52.8 million vouchers this month. However, it has so far only redeemed £27 million.
The government is urging energy customers to redeem their vouchers as they only remain valid for 90 days.
Recipients should receive a second £66 voucher In November and a £67 voucher each month between December to March.
Depending on their energy firm, traditional prepayment meter customers should receive the support as a voucher either by post, text or email, or as automatic credit when they top up. The vouchers can be redeemed at Post Offices or in the 28,000 stores with PayPoint services across the UK.
Four million households use a ‘pay-as-you-go’ prepayment meter, and half of these households use older meters without smart technology, according to industry regulator Ofgem.
Customers on a smart meter should have their meters credited automatically with their entitlement.
Households paying for their energy in arrears by fixed monthly direct debit should expect their instalments to be deducted from their bills, or the money to be refunded after their bill has been paid.
Those who receive monthly or quarterly bills based on their energy consumption, will see each monthly installment as a deduction from their bill, or applied as credit to their balance.
Although energy firms can move customers onto prepayment meters when they are struggling to pay their bills, they tend to be more expensive than paying for energy in arrears by direct debit.
Citizens Advice announced last month that the number of people seeking help from the charity because they had been moved to a prepayment meter soared by 138% over the last two years.
It predicted that prepayment customers could spend £258 more than direct debit customers on energy this winter.
29 October: Failed Supplier Exits Special Administration Limbo
Customers of Bulb, the energy company placed into special administration by the energy market regulator, Ofgem, in November 2021, will move to Octopus as part of a government-approved deal hammered out in the past 24 hours.
The 1.5 million customers involved do not need to take any action, and the process should not involve any disruption to their supply or account management. All terms and conditions of tariffs and credit balances remain the same and customers should continue to make payments in the same way they do now.
Bulb customers are being advised not to consider switching to another firm at least until the transfer of the business is completed in November. The vast majority of energy consumers across the country are currently on standard variable rate deals from their supplier, with no cheaper deals available.
Octopus, which has a good reputation for customer service, will continue to use Bulb’s technology and brand for a transitionary period so that there is a smooth transfer for Bulb’s customers.
The deal is the culmination of a competitive sale process run by the special administrators, Teneo. They were appointed to run the company because, this time last year, no other energy company was willing or able to take on such a large customer base, given the cost of supplying them with energy under the then-operating Ofgem price cap.
Newly-appointed business secretary Grant Shapps said: “This is a fresh start and means Bulb’s 1.5 million customers can rest easy, knowing they have a new energy home in Octopus.”
Greg Jackson, CEO and founder of Octopus Energy Group, said: “We [Octopus and Bulb] started off as rivals but shared the same mission – driving a greener, cheaper energy system with people at the heart. We know how important this is to Bulb’s loyal customers and dedicated staff, and are determined that Octopus can provide them with a stable home for the future.”
Bulb customers can read more about this deal and what it means for them on the Bulb blog and regular updates on the next steps on Octopus Energy’s information page.
28 October: UK Dips To Nine Days’ Reserves Ahead Of Winter
The owner of British Gas, Centrica, announced today that it has reopened its Rough gas storage facility in time for winter when energy demand will rise in the UK, writes Candiece Cyrus.
Surplus natural gas will be injected into the facility when prices are low, and then used at times of high demand, such as during the upcoming colder months, which the company says will help stabilise or reduce energy bills. Centrica has resumed Rough operations after five years, following engineering upgrades over the summer.
The facility, which is a gas field located in the North Sea 20 miles off the coast of Easington, Yorkshire, was closed in 2017 after problems were found with a number of the 30 wells used to inject and withdraw gas.
Although the work done so far on Rough will only enable it to operate at 20% of its previous capacity this winter, this is enough to make it the UK’s largest gas reserve, boosting the UK’s gas storage volume by 50%.
It can store up to 30 billion cubic feet of gas, which can then be distributed via the UK’s gas network to households and businesses.
Chris O’Shea, Centrica’s chief executive, said “I’m delighted that we have managed to return Rough to storage operations for this winter following a substantial investment in engineering modifications.
“In the short term we think Rough can help our energy system by storing natural gas when there is a surplus and producing this gas when the country needs it during cold snaps and peak demand. Rough is not a silver bullet for energy security, but it is a key part of a range of steps which can be taken to help the UK this winter.”
National Grid warned earlier this month of power shortages as the worst case scenario, if demand for energy outweighs supply this winter, due to the ongoing global energy crisis. See 6 October update.
According to the North Sea Transition Authority, the UK has some of the lowest reserves of gas in Europe at nine days. Germany reserves are at 89 days, while France’s are at 103 days and the Netherlands 123 days.
Recommencing the use of Rough is one method the UK is using to attempt to boost energy security. Earlier this month, the UK government issued over 100 licences for oil and gas extraction in the North Sea. Critics say the move is not in line with global warming targets.
Mr O’Shea said Centrica’s long-term aim for reopening the Rough facility is,“delivering a net zero electricity system by 2035, decarbonising the UK’s industrial clusters, such as the Humber region by 2040, and helping the UK economy by returning to being a net exporter of energy.”
Prime Minister Rishi Sunak announced in Prime Minister’s questions this week that he will not lift the ban on fracking, the controversial method of extracting gas from shale rock in the ground, which was proposed by his predecessor, Liz Truss, in September.
He has separately confirmed that he will not attend the COP27 climate summit in Egypt next month.
17 October: Support For Businesses Also Subject To Treasury Review
Today’s statement on government economic strategy from the new Chancellor, Jeremy Hunt, contained a bombshell announcement that the Energy Price Guarantee (EPG) will only run as originally designed until April 2023.
As detailed in the stories below, the EPG caps the rate suppliers can change per unit of energy and for associated standing charges, putting annual bills for a household with typical consumption at around £2,500. It had been scheduled to run until October 2024.
There are fears that average household energy bills that do not benefit from government support could top £4,300 in April.
Mr Hunt has also served notice on the Energy Bill Relief Scheme, which provides support for businesses and public institutions by discounting the wholesale price they can be charged. It will operate as planned until April 2023 but any extension of support will now be subject to close scrutiny.
Both schemes will now be subject to a Treasury-led review, with today’s statement saying the Prime Minister and the Chancellor have agreed it would be irresponsible for the government to continue exposing the public finances to unlimited volatility in international gas prices.
Introducing the review, Mr Hunt said the aim is to design a new approach that will cost the taxpayer significantly less than planned while ensuring enough support for those in need. He added that support for businesses will be targeted to those most affected, and that the new approach will better incentivise energy efficiency.
Mr Hunt did not mention the Energy Bill Support Scheme, which will reduce all household electricity bills by £400 between now and March. The assumption is that this will proceed unchanged.
The Chancellor effectively reversed all the measures contained in the 23 September mini-Budget from his predecessor, Kwasi Kwarteng, except those already being brought into play, namely changes to the Stamp Duty regime in England and Northern Ireland, and the reduction to National Insurance Contributions starting next month.
This implies that the £400 support scheme, which will see £66/£67 trimmed off electricity bills each month for six months, will survive untouched.
12 October: Law To Cap Renewable And Nuclear Producer Revenues
The Energy Prices Bill, which provides legal footing for the government’s Energy Price Guarantee and associated measures introduced on 1 October, was introduced to Parliament today with additional proposals for a limit on how much revenue can be made by low-carbon electricity generators, writes Candiece Cyrus.
The Cost-Plus Revenue Limit will cap the amount that can be earned by electricity generators which use renewable and nuclear power. The government is consulting on the details of the scheme ahead of its introduction in England and Wales next year.
At present, wholesale energy prices are set with reference to the most expensive cost of generation, which is currently natural gas, the price of which has been driven up as a consequence of the war in Ukraine. Crucially, all electricity generators receive this top rate, even if they use a cheaper power source.
This means households do not benefit from the lower cost of electricity production from renewables and nuclear. The government is therefore aiming to break the link between the use of natural gas in electricity generation and the price of electricity generated by other means.
In its analysis of the Bill, energy market analyst Cornwall Insights said of the limit: “The scheme will be applied to all excess revenues renewable generators are receiving and will still allow them to cover their costs and receive an appropriate revenue that reflects their operational output, investment commitment and risk profile.”
The government has refuted claims that the scheme is a windfall tax on energy generators by arguing it is a tax on excess revenue, not all revenue made by the companies.
Laying the Bill before Parliament, Jacob Rees-Mogg MP, business secretary, said: “Businesses and consumers across the UK should pay a fair price for energy. With prices spiralling as a result of Putin’s abhorrent invasion of Ukraine, the government is taking swift and decisive action.”
Under the Energy Price Guarantee, annual energy bills for households with average levels of consumption will be around £2,500.
Without the intervention, energy unit costs under industry regulator Ofgem’s price cap were predicted to rise to almost £3,550 this month, £5,400 in January next year and higher still in April.
The new Bill also gives legal standing to the Energy Bills Support Scheme which provides £400 to eligible households to help pay for energy throughout winter and the Energy Bill Relief Scheme for businesses.
It also covers government support for households which are not on the mains gas grid, and use alternative forms of energy, and ensures landlords who are benefiting from its support are fined if they overcharge their tenants for energy.
11 October: Octopus Energy And OVO To Pay Customers To Cut Usage
Energy suppliers Octopus Energy and OVO will pay customers to reduce energy usage this winter, writes Candiece Cyrus.
Octopus Energy has devised a scheme which will reward customers who cut back on their usage during specified two-hour slots.
Only its 1.4 million smart meter customers and around 5,000 of its business customers who have meters that can send regular readings will be able to take part.
OVO will reward its customers on smart meters for using more energy outside peak times of 4pm to 7pm.
Octopus and OVO are among the energy suppliers that are planning to work with National Grid to tackle the potential problem of energy demand outstripping supply during the colder months.
Last week National Grid warned that planned power cuts may be necessary in a worst-case scenario, such as energy imports from Europe to the UK being compromised due to the international energy crisis. See updates below.
The scheme will also boost the use of energy from renewable sources by encouraging customers to switch consumption outside peak hours. During peak periods renewable energy resources are stretched meaning more energy produced from fossil fuels is shared across the Grid.
Octopus Energy’s scheme, Saving Sessions, will start next month and will run until March 2023.
The supplier trialled the scheme between February and March this year with over 100,000 customers who were contacted in advance to notify them of two-hour slots during which they should limit their energy usage as demand for energy was high.
On average, each customer reduced their energy usage by 0.7 kilowatt hours (kWh), per two-hour slot. This saved them on average 23p each time. Some customers on expensive fixed tariffs saved up to £4.35 on each occasion.
However, this winter the firm says National Grid is likely to pay out £3 to £6 per kWh of reduced consumption, with the average customer being rewarded £4 per kWh. Customers are likely to be paid more, on days the Grid is the most stretched.
Greg Jackson, chief executive of Octopus, said: “Instead of cutting-off whole chunks of the country if we are short of gas, we can reward people for using less energy at times of peak demand.
“By doing so, we can make blackouts a thing of the past, and bring costs down for everyone.”
While OVO and a number of other energy suppliers are in talks with the National Grid to offer similar schemes, OVO will be launching a separate trial scheme, Power Move, aimed at saving its customers money and using greener energy.
The scheme, which will run between 1 November and 31 March 2023, will pay customers who are on smart meters, which are able show energy consumption in real-time, to use more energy outside 4pm to 7pm. This is the period when the average household typically uses 19% of the overall amount of energy they consume in a day.
OVO will be asking customers taking part in the scheme to reduce their average consumption during these hours this period to less than 12.5% to help use more renewable energy.
For the average household, this could require doing three loads of washing per week outside of the peak hours. Each household that meets the target each month will be rewarded with an average of £20.
OVO will contact its customers to apply for the scheme from mid October.
Octopus Energy smart meter customers can sign up to its Savings Sessions scheme online.
9 October: No Medical Exemptions If Winter Outages Occur
The Energy Networks Association, which represents companies operating the UK’s electricity and gas infrastructure, has provided additional detail on how the country might cope with power cuts this winter.
There would be no exemptions from cuts for households dependent on electricity for medical equipment. Those in such circumstances are being asked to ensure they have adequate back-up facilities and to contact their healthcare provider for more information and guidance.
National Grid, which has overall responsibility for gas and energy supply, suggested earlier this week that coordinated, controlled national power cuts might be necessary to stave off the possibility of random blackouts if energy demand outstripped supply (see story below).
No cuts are planned at present, but National Grid assessed what action might be required in a worst-case scenario triggered by a lack of imported energy from Europe to the UK because of the international energy crisis.
Planning cuts in advance and giving people prior warning means supply can be targeted to those in most pressing need. If an emergency power cut is implemented, customers in certain locations would typically be without power for around three hours per day during the emergency.
The Networks Association says ‘protected sites’ such as air traffic control centres and major hospital facilities with accident and emergency departments would be exempt from emergency planned power cuts.
Crucially, residential customers would not be exempt. This would mean customers who are medically dependent on electricity to power essential equipment would need to rely on the backup power sources they already have in case of power outages.
Customers who require a continuous supply of electricity for medical reasons and who would need medical support during a power cut, are being told to seek advice from their local health service provider.
If the decision is taken to implement emergency power cuts, public information statements will be made, and customers will be able to find if and how they are affected on this website – www.powercut105.com – by entering their postcode.
National Grid remains confident there will be adequate electricity supplies through the winter without the need to introduce power cuts. As detailed below, it is introducing the Demand Flexibility Service to incentivise households and businesses to reduce consumption of electricity between the peak hours of 4pm – 9pm.
Starting on 1 November, the scheme – which will be managed by energy suppliers – could see participating households with smart meters paid up to £10 a day for using appliances at off-peak times.
6 October: Demand Flexibility Service Aims To Cut Peak Demand
Fears of power cuts this winter have prompted National Grid to develop a scheme that will reward energy customers for reducing consumption if the network infrastructure provider spots that the gap between demand and available supply is narrowing.
The Demand Flexibility Service, scheduled to start on 1 November and run until March 2023, has been devised by National Grid working with energy suppliers, the market regulator Ofgem and the government.
Energy-intensive industries are the primary target of the service, although suppliers may offer ‘time of use’ incentives to households who, for example, commit to using appliances such as washing machines and tumble dryers outside peak consumption periods.
Participants would need electricity smart meters to allow their consumption patterns to be accurately monitored in real time. Reports say taking full advantage of the scheme could be worth £10 a day.
Suppliers are being asked to contact customers to ensure maximum participation in the scheme when it is launched.
National Grid says that, without the proposed reductions in peak-period consumption, cold days with little wind to power turbines could result in the need to “interrupt supply to some customers for limited periods of time in a managed and controlled manner.”
It says power cuts would be unavoidable if supplies of electricity and natural gas to the UK from Europe were interrupted: “It would mean that some customers could be without power for pre-defined periods during a day – generally this is assumed to be for 3 hour blocks.
“This would be necessary to ensure the overall security and integrity of the electricity system across Great Britain. All
possible mitigating strategies would be deployed to minimise the disruption.”
Suppliers would be tasked with identifying ‘vulnerable’ customers, such as those reliant on powered medical equipment. However, only key infrastructure points, such as air traffic control centres and accident and emergency facilities, would be guaranteed uninterrupted supply.
Extra use of coal-fired power stations is also being lined-up to secure supplies.
The root cause of the supply issue is the conflict in Ukraine and what National Grid calls “unprecedented turmoil and volatility in energy markets in Europe and beyond and shortfalls of gas in continental Europe”.
It says these could have a range of knock-on impacts in Britain, including blackouts, with wholesale prices remaining at record high levels for the foreseeable future.
1 October: Government Intervention Limits Scale Of Price Hike
Today – 1 October – marks the first day of the government’s Energy Price Guarantee, the replacement for the price cap that has been managed by Ofgem, the market regulator, since its introduction in 2019.
The Guarantee limits the amount suppliers can charge for each unit of gas and electricity used by a household in the UK, as well as each fuel’s standing charge. It will be in place for two years.
Importantly, it does not limit the size of bills themselves. The amount owing to suppliers will always be determined by the amount used.
The figure of £2,500 a year that is associated with the Guarantee is the amount of a typical 12-month bill for a household with what is deemed to be ‘average’ consumption over a year: 12,000 kWh of gas, and 2,900 kWh of electricity.
Average bills under the Ofgem cap, had it come into effect today, would have reached almost £3,550 before leaping again to around £5,400 in January and higher still in April.
Soaring bills are blamed on the steep increase in the price of natural gas on wholesale markets, itself attributed to the choking-off of supply from Russia to the West as a result of the war in Ukraine.
While the Guarantee delivers substantial savings on the shelved Ofgem cap, it will still result in higher prices than the cap which ended on 30 September. This placed average annual bills at £1,971.
According to Citizens Advice, debt problems could result in energy suppliers moving over 450,000 customers onto prepayment meters this winter.
The charity says the four million households with prepayment meters are each likely to spend an extra £258 in the coming months relative to those on credit meters who pay in arrears by direct debit, cheque or cash.
As is the case with the previous price cap, under the Energy Price Guarantee prepayment meter customers will pay a slightly higher unit price than those with credit meters.
All households will also benefit from a one-off £400 reduction in their electricity bills, automatically applied over the months October 2022 to March 2023.
This will bring the average bill down to £2,100.
Those not on the gas grid will receive £100 towards the cost of the fuel they use as an alternative.
You can find full details of the Energy Price Guarantee, together with a history of the ill-starred Ofgem cap, in this Q&A feature and in the coverage below.
The government is extending support to commercial energy users through the Energy Bills Support Scheme – again, you’ll find details below.
27 September: Firms Told To Help Customers Through Tough Winter
Energy firms must improve the way they treat vulnerable customers and those struggling to pay their bills following the publication of a review by regulator Ofgem.
This includes identifying those in difficulty, providing additional help, and running extra checks to make repayment programmes realistic for customers, writes Candiece Cyrus.
Ofgem found that TruEnergy, Utilita and ScottishPower have ‘severe weaknesses’ in the way they support customers in payment difficulties.
Its most recent Market Compliance Review found that another five firms (E, Good, Green Energy, Outfox the Market and Bulb), have issues in the support they provide to customers struggling to pay their bills.
Eight suppliers (Ecotricity, EDF, E.ON, Octopus, OVO, Shell, Utility Warehouse and So Energy/ESB Energy), have ‘minor’ issues.
Only British Gas was found to have ‘no significant issues’. Utilita and ScottishPower are being issued with enforcement notices, requiring ‘specific and urgent actions’.
In July, Ofgem issued TruEnergy with a Provisional Order compelling it to take action to ensure that its direct debit policy and processes are fit for purpose, and to ensure that customer direct debits are set at the right level. No further action has been outlined against the firm for the moment.
The latest Ofgem market review found that, across the industry, issues ranged from inferior training in how to support and identify vulnerable customers – those who are of pension age or disabled, for example – to a lack of clarity on how payment plans are reassessed if a customer’s situation changes.
The regulator has sent best practice information to all energy suppliers alongside a letter outlining its expectations, including:
- ensuring that their customers can easily contact them and are treated fairly
- identifying vulnerable customers and providing them with additional support if necessary
- setting affordable repayment rates and checking if customers have the ability to pay before force-fitting prepayment meters.
Jonathan Brearley, Ofgem CEO, said: “We have reviewed suppliers on how they help customers who are having trouble paying their bills, particularly those who are vulnerable, and found some suppliers have fallen short of the standards Ofgem expects.
“We accept that there are many pressures on energy companies in the market this winter, but the needs of vulnerable customers must be part of their top priorities. We will now work with companies on where they can improve.”
Dame Clare Moriarty, chief executive of Citizens Advice, said: “Today’s review cements what struggling customers already know: some energy companies are falling drastically short of the mark. This is utterly unacceptable given the huge cost-of-living pressures people are facing.
“Suppliers need to up their game and Ofgem needs to hold them to task. With a tough winter ahead we must also see a ban on backdoor disconnection tactics like pushing people in debt onto prepayment meters.”
Data from Citizens Advice revealed more customers are unable to top up their prepayment meter this year than in the last three years combined.
The charity’s Market Meltdown report found that the number of Ofgem staff working to protect customers from poor supplier practice fell by 25% between 2017/18 and 2020/21, although there were a record number of energy firms in the market at that time.
From 1 October, the government will freeze energy bills at £2,500 a year for the next two years, for the average household, with every household additionally receiving a £400 discount on their electricity bill between October and March 2023.
Low income households may also be entitled to cost of living payments.
Ofgem’s next market review into customer vulnerability will be published later this year.
22 September: Gas Extraction Ban Lifted To Boost Energy Security
The UK government has today lifted the 2019 moratorium on fracking – a controversial method of extracting shale gas from deep beneath the earth.
The move was signalled by the Prime Minister when she unveiled the Energy Price Guarantee to the House of Commons on 8 September. Confirmatory details have since been delayed by the period of mourning for Queen Elizabeth.
Despite concerns linking hydraulic fracturing (‘fracking’) to earth tremors, the previously banned technique will be allowed to resume following an announcement from the Department of Business, Energy and Industrial Strategy (BEIS).
The department says ending the moratorium will help maintain the UK’s energy security given the conflict in Ukraine, which has pushed up prices on wholesale markets.
Jacob Rees-Mogg MP, business secretary, said: “In light of Putin’s illegal invasion of Ukraine and weaponisation of energy, strengthening our energy security is an absolute priority, and – as the Prime Minister said – we are going to ensure the UK is a net energy exporter by 2040.
“To get there we will need to explore all avenues available to us through solar, wind, oil and gas production – so it’s right that we’ve lifted the pause [on fracking] to realise any potential sources of domestic gas.”
Fracking involves drilling into the earth before injecting a high-pressure mix of water, sand and chemicals into rock to release shale gas.
The technique made headlines yesterday when the founder of Cuadrilla, the UK’s first fracking company, said Britain’s geology made fracking impossible at any practical scale.
Scientific consensus on the risks associated with fracking are unchanged since the introduction of the moratorium in 2019.
Companies with fracking permits must pause their operations if they detect tremors of more than 0.5 in magnitude. Earthquakes can be felt at magnitudes above 2.0.
Friends of the Earth campaigner Danny Gross says fracking puts communities at risk and would have a negligible impact on household energy bills.
He said: “Ripping up the rules that protect people from fracking would send shockwaves through local communities.
“This announcement suggests that the government is planning to throw communities under the bus by forcing them to accept ‘a higher degree of risk and disturbance’.”
The government said fracking activity must obtain local support. Developers will need to have the necessary licences, permissions and consents in place before they can commence operations.
21 September: Six-Month Scheme To Support Non-Domestic Customers
Business Secretary Jacob Rees-Mogg MP has today given further details of the six-month government support package for all UK businesses, charities and public sector organisations, such as schools and hospitals, which are grappling with spiralling energy bills.
The Energy Bill Relief Scheme will cut the price of wholesale gas and electricity for all non-domestic customers. Support will be equivalent to the Energy Price Guarantee (EPG) for domestic consumers announced on 8 September by Prime Minister, Liz Truss (see story below).
The new measures will apply to fixed business contracts agreed on or after 1 April 2022 and to existing default, variable and flexible tariffs and contracts. No action is required by bill-payers to benefit from the deal.
The business energy market has operated without an equivalent to the price cap that was introduced into the domestic market in 2019, and which will be supplanted by the EPG on 1 October 2022.
The business energy bill scheme will also apply to energy usage from 1 October 2022 and will run until 31 March 2023. The government says businesses will see a reduction in their October bills, which are typically received in November.
As with the domestic EPG, the government will automatically apply a discount to the price per kilowatt hour (kWh) of gas and electricity used by businesses.
To this end, it has set a Supported Wholesale Price which is expected to be £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas (the price will be confirmed on 30 September). This would equate to kWh prices of 21.1 pence for electricity and 7.5 pence for gas. Bills would also include the supplier’s standing charge, as at present.
The government says its supported price level will be less than half the wholesale prices expected this winter. Part of the funding for the scheme will be provided by the removal of green levies currently paid by non-domestic customers.
Green levies have also been removed from domestic energy bills from October. The levies will temporarily be met from general taxation.
Reflecting the complexity of the non-domestic energy market, the level of price reduction for each business/charity/public sector body will vary according to its contract type and circumstances:
- Those on existing fixed price contracts will be eligible for support where the contract was agreed on or after 1 April 2022. If the wholesale element of the agreed price is above the new supported price, the per-unit costs will automatically be reduced by the relevant price per kWh for the duration of the Scheme.
- Customers entering new fixed price contracts after 1 October will receive support on the same basis.
- Those on other tariffs, including variable rate deals, will receive a per-unit discount that will vary over the six-month period but which will reflect the difference between the supported price and the average expected wholesale price over the period. The government says non-domestic customers on variable tariffs will therefore pay reduced bills, but these will still change over time and may still be subject to price increases.
- The government is working with suppliers to ensure all customers in England, Scotland and Wales are given the opportunity to switch to a fixed contract/tariff for the duration of the scheme if they wish, underpinned by the Energy Bill Relief Scheme support.
- Businesses with flexible purchase contracts will see bills reduced according to the specifics of their contract.
- A parallel scheme, based on the same criteria and offering comparable support, but recognising the different market structure, will be established in Northern Ireland.
- Support will also be provided to non-domestic customers which are not connected to either the gas or electricity grid and who use heating oil or alternative fuels instead of gas. Further details will follow.
The six-month scheme will be reviewed after three months to determine whether targeted support should be provided to selected non-domestic customers after March 2023. The government’s domestic support package is scheduled to run for two years from 1 October 2022.
The hospitality industry has been particularly vocal in highlighting the likelihood that pubs, clubs and restaurants would close if not help were forthcoming.
Kate Nicholls, head of the UK Hospitality trade body, welcomed the announcement but said help would be required beyond the six-month life of the new scheme: “We will continue to work with the government to ensure there is no cliff edge when these measures fall away.”
Mr Rees-Mogg said the government will also focus on improving the UK’s energy self-sufficiency: “The measures we are taking to boost the amount of domestic energy we produce will improve both energy security and supply and will increase growth, protect jobs and support families with their cost of living this winter.”
21 September: Domestic Support Confirmed For N Ireland, Park Homes, Tenants And Heating Oil Users
More details have emerged of the government’s Energy Price Guarantee (EPG), which was announced by the Prime Minister on 8 September as a way to limit average annual household bills to £2,500 for two years from 1 October.
On the same day it provided details of its Energy Bill Relief Scheme for non-domestic customers (see story above), the Department for Business, Energy & Industrial Strategy confirmed that equivalent gas and electricity bill support will be provided to households in Northern Ireland.
The energy market in Northern Ireland is structured differently to the rest of the UK, and officials have used the time since the original announcement to work out how to put the support measures in place.
The reduction in the unit price of gas and electricity in Northern Ireland will take effect from November, but the government will backdate support for October bills via bills in November. No action is required to benefit from the support.
All households in the UK, including Northern Ireland, will also receive a £400 discount on bills across the six months from October 2022 to March 2023, bringing the average bill down to £2,100 for 2022/23.
The scope of this discount will be extended to include park home residents and tenants whose landlords pay for their energy via a commercial contract. The government is to introduce legislation to make sure landlords pass the discount on to tenants who pay all-inclusive bills.
An additional payment of £100 will also be made to over one million UK households who are not on the gas grid and who use alternative fuels such as heating oil, which has also risen in price in recent months.
12 September: Average Domestic Bills Capped At £2,500 A Year For Two Years
Addressing the House of Commons last week, Prime Minister Liz Truss announced a package of measures designed to support households and businesses facing crippling energy bill increases.
She also said the UK will improve energy self-sufficiency through greater use of nuclear power, increased extraction of oil and gas from the North Sea, the ending of a moratorium on fracking, and continued investment in renewables such as hydrogen, solar and wind.
The main points of the government’s radical intervention in the energy market include:
- An Energy Price Guarantee for domestic customers on standard variable rate tariffs to be set at £2,500 per annum for the next two years for those with typical consumption levels, starting on 1 October. This supersedes the regulator Ofgem’s price cap, which was scheduled to move from £1,971 to £3,549 on that date.
- The previously announced £400 electricity bill discount, available to all households, will apply this winter, bringing the average bill down to £2,100 for 2022/23. The discount will be a deduction off bills at the rate of roughly £66 a month.
- As things stand, the average bill in 2023/24 will be the full £2,500.
- The Guarantee is effectively a cap on gas and electricity unit prices and on standing charges for each fuel, so actual bills will be determined by usage.
- The £2,500 figure includes the removal of green levies at around £150 per bill.
Unit prices
- The new average electricity price per unit will be 34.0 pence per kWh from 1 October. This is an increase from the current 28.3 pence but lower than the 51.8 pence allowed for by the revised but abandoned Ofgem price cap.
- The new average gas price per unit will be 10.3 pence per kWh from 1 October (currently 7.4 pence, it would have risen to 14.8 pence under the abandoned cap).
- The average price reflects the fact that there are regional differences across the UK caused by varying infrastructure costs.
- Standing charges for electricity will rise on 1 October from 45.3 pence to 46.36 pence per day (average). For gas, the increase is from 27.2 pence to 28.49 pence per day (average). These increases match what was contained in the Ofgem cap.
Fixed tariffs
- Those on a fixed tariff at a higher rate than the Price Guarantee will have their unit prices reduced by 17p/kWh for electricity and 4.2p/kWh for gas.
- These unit prices have been passed to suppliers to ensure that they are used to calculate bills on time for 1 October. Energy suppliers will adjust fixed tariffs automatically.
- Customers on fixed tariffs do not need to take any action to get the benefits of this scheme.
- The aim is for those on fixed tariffs to obtain the same £1,000 saving on the proposed but now abandoned Ofgem price cap.
Other energy users
- Consumers using heating oil or LPG and those living in park homes or shared energy grids will also receive financial support – such users have previously not benefited from a price cap.
- The government says it is working to ensure that tenants who pay for their energy as part of their rent obtain the benefits of the Price Guarantee.
- Support will be provided to energy consumers in Northern Ireland, who have not been covered by the Ofgem price cap, which applies to England, Scotland and Wales.
Business users
- There will be a six-month support scheme for businesses, with details to be announced.
- This will include support for charities and public buildings such as schools and libraries.
Other measures
- Previously announced financial support for those on certain means-tested benefits, pensioners and the disabled, will continue to be paid.
- Around 100 new exploration licences will be granted to companies wishing to access gas and oil reserves in the North Sea.
- Under the auspices of GB Nuclear, around 25% of UK electricity will be generated by nuclear power by 2050.
- The 2019 moratorium on drilling for shale gas – known as fracking – will be ended, but local communities will be asked to support projects before they can go ahead.
- The regulation of the energy market will be reviewed, putting the role of Ofgem under the spotlight.
- Action will be taken to decouple the price of electricity from the cost of the most expensive means of generation. At present, the price of electricity is set according to the cost of using gas, which means other generators using less expensive means receive a disproportionately high amount.
- The Treasury and Bank of England have established a £40bn Energy Markets Financing Scheme which will provide emergency funding to energy companies if they require short-term cash injections to support their trading positions in wholesale markets. The lending scheme is designed to prevent any further energy companies going bust – around 30 have gone to the wall since the beginning of last year.
The Prime Minister did not provide details of how the various measures will be funded, although the Chancellor said last week there would inevitably be higher government borrowing in the short term. Any prospect of a windfall tax on energy producer profits has been ruled out by Ms Truss.
The Chancellor is expected to provide further details when he makes a fiscal statement – effectively a mini Budget – later this month.
7 September: Prime Minister Set To Unveil Support Package
Prime Minister Liz Truss has ruled out a windfall tax on energy producers as a way to help fund the multi-billion pound cost of freezing energy bills. Details of how the government will tackle the energy affordability crisis will be announced by Ms Truss tomorrow.
Pressed on the matter of using a windfall tax as a revenue-generating mechanism at Prime Minister’s Questions today, she said the UK “cannot tax its way to growth”, arguing that higher business taxes served as a deterrent to international investment.
This means funding for the measures to be revealed tomorrow will either have to come from a levy on energy bills for years to come, or from general taxation.
Former Chancellor Rishi Sunak imposed a £9bn windfall tax on BP and Shell in May to help fund his package of financial assistance to help with the cost of living crisis, including the £400 energy bill discount that every household is currently due to receive in stages between October and March 2023.
His newly-appointed successor, Kwasi Kwarteng, has conceded that government borrowing will need to increase to pay for intervention in the energy market.
Ms Truss promised “immediate action” on energy, saying she wanted to give households certainty that they would be able to afford their bills and get through the coming winter.
But she said the current situation needs more than a “sticking plaster” approach, with action required to boost UK energy resilience through increased oil and gas production in the North Sea and the building of new nuclear power stations.
Crucially, she said support would be provided to businesses, many of which have seen bills rise by 500% when renewing their contracts. Unlike the domestic energy market, there is no price cap on business energy supply.
And in response to a question from Victoria Atkins, MP for Louth & Horncastle in Lincolnshire, about households that rely on heating oil, where there is no price cap, rather than mains gas, Ms Truss said tomorrow’s announcement would address the concerns of all energy users.
The Prime Minister also said that, in dealing with the issues facing the energy market, she will be looking at the way the market is regulated. Ofgem, the regulator, has faced criticism from MPs and others for failing to ensure the financial strength of energy providers, 29 of which have gone bust in the past 18 months.
In addition to ruling out a windfall tax, Ms Truss told MPs that she intends to reverse the increase in National Insurance Contributions introduced by Mr Sunak in April and to stop the proposed increase in Corporation Tax.
6 September: Prime Minister Liz Truss Promises Action On Energy This Week
In her speech outside 10 Downing Street earlier today, Prime Minister Liz Truss promised action to tackle energy bills later this week, laying the blame for the energy crisis at the door of Vladimir Putin and his invasion of Ukraine.
The scheduled 80% increase in the energy price cap on 1 October – from £1,971 to £3,549 a year for a household with typical consumption – is a focus of attention across the political and social spectrum, and the consensus is that urgent action is required.
Ms Truss is said to be finalising plans to freeze prices at or close to their current level for a period of three or six months. While this would be a huge relief to millions of households who have been staring down the barrel of unaffordable bills, it will still leave energy costs painfully high.
The cost of government intervention – perhaps in the form of loans to energy suppliers to allow them to buy expensive gas on wholesale markets without passing on the cost to domestic customers – is estimated to be at least £100bn.
It is thought this may be repaid by imposing a levy on domestic bills for up to two decades – a controversial move, especially given that there is no guarantee that wholesale prices will fall from their current levels any time soon.
There are also calls for the government to act on business energy bills, where there is no cap on prices. Many firms are now reportedly facing bills five times higher than previously. Inevitably, these higher costs are feeding through to retail prices and fuelling the cost of living crisis – inflation stands at 10.1% and if forecast to rise higher.
Action here could include the introduction of a cap on unit costs, or a temporary reduction or suspension of the 20% rate of VAT that most companies pay on their energy bills.
Ms Truss also said she was keen to see “spades in the ground” as a way to boost the country’s security of energy supply. In the absence of other details, there is speculation that this could signal a forthcoming green light for fracking, the deeply controversial means of gas extraction that is said by critics to damage local properties.
She also promised tax cuts alongside investment in hospitals, homes, roads and broadband infrastructure, as well as a renewed focus on the NHS.
In the cabinet appointments that followed this afternoon’s speech, Ms Truss appointed Kwasi Kwarteng MP, who was business secretary under Boris Johnson, to be Chancellor of the Exchequer. Jacob Rees Mogg MP has been appointed business secretary.
5 September: Detailed Plans To Tackle Energy Crisis Expected In Days
Liz Truss, who will succeed Boris Johnson as Prime Minister tomorrow (Tuesday), has promised to ‘deliver’ on the UK energy crisis while cutting taxes and growing the economy.
In her brief speech at the announcement of the winner of the Conservative Party leadership contest – she polled 80,326 votes, with Rishi Sunak on 60,399 – she promised a ‘bold plan’ to tackle the country’s economic woes.
Further details of her proposals for energy prices will be revealed later this week, but she said she would concentrate on “dealing with people’s energy bills but also dealing with the long term issue we have on energy supply.”
One option rumoured to be on Ms Truss’ list is for domestic energy bills to be frozen at today’s levels, with the planned increase in the Ofgem price cap on 1 October (see stories below) being shelved.
This could cost an estimated £100bn, although the money could be recouped through a levy on energy bills over 15 or 20 years or in part by imposing a windfall tax on oil and gas producing companies.
There could also be additional targeted support for households on lower incomes.
Ms Truss may also want to provide relief to business users, who are already seeing prices escalating rapidly as there is no cap on business energy bills.
One measure here could be the temporary reduction or removal of VAT on commercial energy bills. This would save most firms 20% (VAT on domestic bills is 5%).
In terms of tackling energy supply issues, which have been exposed by the UK’s heavy use of expensive natural gas, Ms Truss could consider:
- increased investment in renewable energy sources such as solar, wind, wave and tidal
- expansion of the UK’s fleet of nuclear power stations, including modular units requiring less construction time
- approval for controversial fracking schemes, which extract gas from shale rock deposits
- subsidised energy saving measures across UK housing stock, including improved insulation and installation of solar panels.
Sir Keir Starmer, leader of the Labour party, said “there can be no justification for not freezing energy prices”, saying there was a political consensus for such a move, and that Ms Truss only has to work out how to pay for it.
Labour favours the imposition on a windfall tax on the profits of oil and gas producers.
1 September: Radical Action Proposed To Cut Bills, Reduce Consumption And Ensure Security Of Supply
OVO, the UK’s third largest energy supplier and a proponent of renewable electricity, has released a 10-point plan to tackle steepling energy bills.
It says a “compassionate and creative” approach is required to address the fact that households are not being given adequate support given the scale of the energy market crisis.
The regulator, Ofgem, announced last month that average annual prices will rise from under £2,000 to £3,549 when its price cap changes on 1 October, with a further increase towards £6,000 a year expected when the cap is next updated in January.
Prices are being driven higher by a shortage of natural gas on wholesale markets, largely because Russia – Europe’s main source – is choking off supplies as it wages war in Ukraine.
OVO says a strategy is required to address short, medium and long-term issues.
In the short-term it says:
- The £400 Energy Bill Support Scheme rebate off all household electricity bills should be paid in full to households over the next three months and not spread over six months.
- A Fuel Poverty Task Force, consisting of charities,energy companies and government departments, should be set up to identify those most in need and provide them with a financial safety net
- Funding for debt advisory charities should be increased to help them cope with rising demand. OVO says Citizens Advice has seen an increase of more than 1000% in people seeking advice on their energy bills.
In the medium-term:
- The prepayment meter premium, which sees four million customers pay around £59 more per year than customers paying by monthly direct debit, should be abolished, with Ofgem lowering the unit rates to make sure a prepayment meter is the cheapest way to pay for energy.
- Bills should be subsidised through a ‘Tariff Deficit Fund’ that would be repaid over a period of years to smooth out the shock of rocketing prices. OVO says: “This scheme can’t be open-ended and unlimited. It should be progressive just like the tax system. This can best be achieved through limiting the number of subsidised units of energy households receive, as higher-income households typically use more energy.”
- Standing charges, which are payable by all gas and electricity customers before any energy is used, should be abolished so bills reflect energy used and reward energy efficiency.
- A national energy efficiency effort should be encouraged to insulate properties nationwide to reduce consumption.
In the long-term:
- The publicly-owned Future System Operator should be given a mandate for securing long term energy demand for the UK as a whole, allowing a move away from short-term hedging strategies used by suppliers at the moment.
- The Department of Energy and Climate Change should be revived to ensure there is a Secretary of State focussed on building a low-cost, low-carbon energy system.
- A carbon tax should be introduced to reduce the UK’s dependence on fossil fuels and accelerate the decarbonisation of all sectors of our economy. It would tax the profits of big oil and gas companies on an ongoing basis, rather than through a one-off windfall tax. OVO says such a tax would allow for environmental levies and VAT to be removed from bills.
An announcement on how the government plans to tackle inflation and the cost of living crisis is expected early next week after the new prime minister – Liz Truss or Rishi Sunak – takes office on Monday.
26 August: Ofgem Sets Price Cap At £3,549 From October
Ofgem, the energy market regulator, has announced that its price cap will rise to £3,549 on 1 October.
The cap limits how much energy companies can charge per unit of energy and for standing charges, and the new figure represents the cost of annual bills for a household with typical usage. It applies in England, Scotland and Wales.
Today’s cap stands at £1,971, and the huge increase will leave millions of households struggling to pay their bills this winter. Another steep increase is expected in January, driven by high wholesale gas prices.
Kevin Pratt, our energy expert, said: “Ofgem’s announcement that its cap will rocket to £3,549 – and £3,608 for homes on pre-payment meters – is no surprise, but it’s still a shock to see energy bills hitting a level just shy of three times what they were in March, when the cap was £1,277.
“The blunt truth is that monthly energy costs of nearly £300 a month are simply unaffordable for low and middle income families at a time when inflation across the economy is running at 10.1%. And as we know, there’s worse to come in January, when the cap is expected to hurtle past £5,380, according to Cornwall Insight.
Unbelievably, the analyst says it will top £6,600 when the cap is reviewed in April 2023.
“With millions of households facing fuel poverty – when energy costs exceed 10% of disposable income – it is time for urgent government intervention in what is clearly a market in deep crisis. This needs to happen now, well in advance of winter, so that people avoid the prospect of not being able to heat their homes as temperatures drop.
“Whether the action takes the form of government-backed loans that would enable suppliers to freeze prices at today’s level, or the introduction of a subsidised social tariff for financially vulnerable households, it needs to happen before October and must be a priority for the new Prime Minister when he or she takes office on 5 September.
“In addition, we need a radical rethink of how we manage our energy needs on a national level. Wholesale gas prices won’t fall any time soon, so we need a long-term strategy to develop reliable and affordable alternatives, including nuclear power. And we need to make our housing stock, new and existing, more energy efficient so that we reduce consumption.”
The price cap applies to domestic properties. There is no equivalent cap for commercial energy customers, who are seeing contract prices rising by a factor of 10 in some cases.
This is forcing businesses into dire financial straits, with growing fears that many will have to close as a result. Others will have no choice but to pass on their increased costs to their customers, further fuelling rampant inflation.
Massive impact
Ofgem boss Jonathan Brearley, CEO of Ofgem, said: “We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make. I talk to customers regularly and I know that today’s news will be very worrying for many.
“The price of energy has reached record levels driven by an aggressive economic act by the Russian state. They have slowly and deliberately turned off the gas supplies to Europe causing harm to our households, businesses and wider economy. Ofgem has no choice but to reflect these cost increases in the price cap.
“The Government support package is delivering help right now, but it’s clear the new Prime Minister will need to act further to tackle the impact of the price rises that are coming in October and next year. We are working with ministers, consumer groups and industry on a set of options for the incoming Prime Minister that will require urgent action. The response will need to match the scale of the crisis we have before us. With the right support in place and with regulator, government, industry and consumers working together, we can find a way through this.”
Ofgem’s average energy usage based on a household of 2.4 people using 2,900 kWh of electricity and 12,000 kWh of gas in a year. This works out at 242 kWh of electricity and 1,000 kWh of gas per month. Of course, this is just the average consumption for a household of between 2-3 people.
25 August: Supplier Increases Fund Targeting Struggling Households
British Gas is to donate 10% of future profits to its Energy Support Fund, with the money being used to provide grants to financially vulnerable customers. It is feeding an immediate £12 million into the fund to kickstart the provision of extra support in the face of soaring bills.
The firm, a subsidiary of energy giant Centrica, made profits of £98 million in the six months to June. The parent company, which benefits from high prices on the sale of the oil and gas it produces, made profits of £1.3 billion in the same period.
Ofgem, the energy regulator, will announce an increase in the energy price cap tomorrow (Friday), which will take effect in October. The cap is expected to rise from its current £1,971 a year for a typical use household to over £3,500, before rising again in January to over £4,200.
British Gas says grants are expected to average £750 per household: “This will help the most financially vulnerable customers who are struggling to pay their bills this winter.”
British Gas customers in fuel poverty – those spending more than 10% of their income on energy bills – and with less than £1,000 in savings are eligible to apply for a grant.
Grants between £250 and £750 are available to help pay recipients pay their energy bills. The average grant size is £550. Over a third of the recipients are on disability benefit while 30% are single parents and a quarter have children under 5 years old.
British Gas already pays £6 million into the fund each year, with additional contributions made to fund specific projects.
There are growing calls for the Ofgem price cap to be frozen, with high costs met through government intervention (see story below). No announcement on government policy to tackle the energy crisis afflicting both domestic and commercial customers is expected before the appointment of the next prime minister on 5 September.
Shell Compensates Overcharged Prepayment Customers
Shell Energy is refunding and compensating 11,275 prepayment customers who were overcharged between January 2019 and September 2022. Refunds will be issued automatically to affected customers.
Ofgem, the market regulator, says the total amount of customer detriment to be refunded is £106,000. The average amount being refunded to affected customers is £9.40.
In addition, the supplier will pay £400,000 to Ofgem’s voluntary consumer redress fund and £30,970 in goodwill payments to affected customers, equating to a total payment of £536,970.
In 2019 Shell Energy, trading as First Utility at the time, agreed to refund and compensate 12,000 customer accounts it overcharged when the Ofgem price cap was introduced.
23 August: Energy Chief Proposes £100 Billion Package To Freeze Bills
Keith Anderson, chief executive of Scottish Power, is spearheading the drive to obtain government backing for a £100-billion package that would freeze energy bills at today’s prices for two years while enabling energy suppliers to pay the current high cost of natural gas on wholesale markets.
According to reports on the BBC, Mr Anderson has discussed his idea with Kwasi Kwarteng MP, the business secretary who is tipped to become Chancellor in Liz Truss’s government if she wins the battle to lead the Conservative Party and thus become Prime Minister on 5 September.
Ofgem, the energy market regulator, is warning people to look out for scam emails being sent out in its name. In a tweet today (24 August), it said: “There’s reports thieves are emailing consumers saying they’re from Ofgem & asking for direct debit details to refund the winter energy repayment THIS IS A SCAM Check links & be #ScamAware.”
The £400 government winter energy payment referred to will automatically be deducted from electricity bills over the course of the winter, so there is no need to send information in order to qualify or receive it.
Mr Anderson is to share his proposals with Scotland’s First Minister, Nicola Sturgeon, and other energy companies.
The suggestion is that the government will guarantee loans of up to £100 billion on behalf of energy suppliers, enabling them to borrow from commercial lenders at competitive rates. They would then use this money to buy gas at historically high wholesale prices without passing on the cost to consumers.
The government money – termed the ‘deficit fund’ – would then service the debts, with the fund being repaid by either a levy on energy bills spread over several decades, or from general taxation.
Under the plan, there would be no increase in the energy price cap from its present level of £1,971 a year for a typical household with average consumption. Ofgem, which administers the cap, is due to announce the new level of the cap, to take effect on 1 October, this Friday, 26 August.
Ofgem adjusts the cap to reflect the costs faced by suppliers on wholesale markets. It is widely expected to rise to over £3,500 in October before increasing again in January 2023 and April 2023, with analysts saying it could rise towards £6,000 a year because of soaring wholesale prices.
These prices are largely being driven by reductions in supply from Russia, the largest supplier of natural gas to Europe. It plans to close the Nord Stream 1 pipeline to Germany for three days next week, purportedly for routine maintenance, although there are suspicions that Russia is using supply constraints to cause political and economic unrest.
In February, Mr Anderson suggested the establishment of a social tariff priced below cost and available to low income households (see story below). However, the escalating scale of likely price increases is threatening millions of households on relatively high incomes with severe financial hardship, hence the promotion of the deficit fund solution.
18 August: Energy Regulator Under Fire For ‘Not Putting Consumers First’
A director has quit her post at the UK’s energy regulator in protest over changes to the way it works out the energy price cap, writes Andrew Michael.
Christine Farnish, a non-executive director of Ofgem, tendered her resignation to the business secretary, Kwasi Kwarteng MP, at the beginning of August.
Ms Farnish said she was stepping down from the role she joined in 2016 because she did not believe the regulator had “struck the right balance between the interests of consumers and the interests of suppliers”.
The cap limits how much gas and electricity firms can charge for units of energy and standing charges. It is forecast to rise significantly this October to over £3,500 a year, up from its current level of £1,971 (for a household with typical consumption).
Consumer rights campaigners have warned that the move, with another uplift taking it beyond £4,200 in January 2023, will force millions of consumers into fuel poverty, which is when energy costs account for more than 10% of their disposable income.
At the start of August, Ofgem said it was changing the methodology for the price cap to allow suppliers to recoup the full costs of buying energy for their customers at very high prices. It also announced that it would move from reviewing the cap from twice to four times a year.
An increase in energy prices has been one of the main contributors to the inflation spike experienced by the UK in recent months, exacerbating a cost-of-living crisis being endured by the nation’s households and prompting a sharp rise in interest rates.
Earlier this week, it was reported that consumer prices rose to 10.1% in the year to July. The Bank of England has warned that inflation could peak at 13% by the end of 2022 and remain at elevated levels for the whole of 2023.
It is expected to raise interest rates when it makes its next announcement on 15 September.
Ms Farnish told The Times: “I resigned from the Ofgem board because I could not support a key decision to recover additional supplier costs from consumer bills this winter”.
Ms Farnish’s departure is a further blow to the beleaguered regulator, which recently came under attack from MPs on the Business, Energy, Industry & Science committee who were deeply critical of its performance in recent years.
They claimed the collapse of the UK’s energy supplier market, in which 30 companies have gone bust in the past 18 months and where no customers tariffs now exist below the level of the price cap, could have been mitigated through tougher regulation.
Ed Miliband, the Labour Party’s climate change and net zero spokesman, said Ms Farnish’s resignation was “further proof that the government is asleep at the wheel when it comes to the energy bills crisis”.
15 August: Keir Starmer Says Urgent Action Is Required To Ease Worsening Crisis
The Labour Party has weighed into the argument about how to ease the cost of living crisis, saying it “wouldn’t let people pay a penny more on their fuel bill this winter.”
The current energy price cap – standing at £1,971 a year for those with typical usage – is set to rise to more than £3,500 from 1 October. The actual figure will be announced on 26 August by Ofgem, the market regulator that sets the cap based on wholesale energy prices.
The cap is scheduled to change again from 1 January 2023, with analysts Cornwall Insights predicting a level beyond £4,200 (see below).
In a heavily-trailed speech later today, Labour leader Sir Keir Starmer will say his plan to stop bills rising this winter “would save the typical family £1,000 now, get energy costs under control for the future and help tackle inflation.”
Labour says it would freeze the cap at its current level, meeting the £29 billion cost in part by imposing extra tax on oil and gas giants who, it says, are making ‘eye-watering’ profits. The backdating to January of the windfall tax introduced by Rishi Sunak when he was Chancellor in April would generate £8 billion, according to Labour.
Critics say energy companies such as BP and Shell make the bulk of their profits from international business, so it is not a straightforward matter to hit them with a windfall tax on the sort of scale required.
The Labour plan would also allow for the scrapping of the proposed £400-per-household electricity bill rebate devised by the Conservative government and scheduled to start from October. This would contribute a further £14 billion.
Some £7 billion would be raised by reducing interest payable on government debt because of reduced inflation.
Rishi Sunak – currently vying for leadership of the Conservative Party with Liz Truss – announced a £9 billion energy company windfall tax, with the money earmarked to pay for the £400 reduction in bills.
Both Mr Sunak and Ms Truss have said that responding to the cost-of-living crisis in general and the escalating energy prices in particular will be a priority if they win the leadership contest and become prime minister on 5 September.
The Liberal Democrats under Ed Davey have already called for the increases in the cap to be scrapped.
Labour’s proposed emergency measures include a Warm Homes Plan designed to reduce energy demand and lower bills in the longer term by insulating 19 million homes across the country over the next decade.
It says freezing the price cap will bring inflation down by four percentage points from its current 9.4%.
Sir Keir said: “Britain’s cost of living crisis is getting worse, leaving people scared about how they’ll get through the winter. Labour’s plan to save households £1,000 this winter and invest in sustainable British energy to bring bills down in the long-term is a direct response to the national economic emergency that is leaving families fearing for the future.”
Another measure contained in today’s speech is a commitment to ensure that energy customers with prepayment meters pay the same as people who pay their bills monthly in arrears.
At present, prepay customers pay 2% – 3% more (the current prepay cap is £2,017) with the difference attributed to the higher costs of administering the prepay system, which Labour says is not justifiable.
9 August 2022: Analyst Blames Wholesale Costs And Revised Ofgem Methodology For Shock Cap Forecast
Analyst Cornwall Insight has raised its forecast for October’s price cap by £200, saying it will hit £3,582 a year for a typical household with average consumption. That’s an 80% increase (£1,611) on today’s cap of £1,971.
Ofgem, the energy market regulator, will confirm the level of the October cap on 26 August. But the certainty of a huge increase is prompting calls for urgent government action to help households meet what will, for many, be unaffordable charges.
The figure for January 2023, when the cap will be adjusted again, makes even starker reading, coming in at £4,266. That’s £650 more than Cornwall’s previous estimate.
The steep increase is blamed in part on high wholesale prices for gas and electricity. Ofgem hikes the cap to enable energy suppliers to pass on increased market costs.
Bills will also go up sharply following a change to Ofgem’s cap-setting methodology to allow energy companies to recoup additional costs associated with guaranteeing future supplies.
Cornwall says the cap will rise again in April 2023 – to £4,423 – before falling to around £3,800 in the second half of next year. That’s still substantially higher than this October’s figure.
Dr Craig Lowrey at Cornwall Insight said: “These new forecasts for the January to March 2023 quarter further underline the need for support for households who will struggle to pay their energy bills this winter.
“An increase of over £650 in the January predictions comes as a shock. The cost-of-living crisis was already top of the news agenda as more and more people face fuel poverty, this will only compound the concerns.”
Dr Lowery said the timing of the change to Ofgem’s methodology is unfortunate but is necessary to help prevent more energy companies going out of business, which would trigger additional costs for consumers. Around 30 energy suppliers have gone bust since the start of 2021.
He argues that the existence of cap itself should be challenged: “Rather than critiquing the methodology of the cap, it may be time to consider the cap’s place altogether. After all, if it is not controlling consumer prices and is damaging suppliers’ business models, we must wonder if it is fit for purpose – especially in these times of unprecedented energy market conditions.
“Right now, the current price cap is not working for consumers, suppliers, or the economy.”
Cornwall has added its voice to those demanding government action to help beleaguered households: “It is essential that the government use our predictions to spur on a review of the support package being offered to consumers. If the £400 [to be deducted from all electricity bills in stages between October and March] was not enough to make a dent in the impact of our previous forecast, it most certainly is not enough now.”
Rishi Sunak MP, who is vying with Liz Truss MP to be elected leader of the Conservative Party and thus the next Prime Minister from 5 September, is reported as saying he will increase the £400 payment if victorious.
Ms Truss has yet to set out her policy on the matter, although she has indicated that she would introduce tax cuts to help with the cost of living crisis.
Opposition MPs have called for greater taxation of energy company profits to fund relief measures for the most vulnerable. Some are also calling for VAT and green levies to be removed from energy bills.
Ed Davey, leader of the Liberal Democrats, says the government should scrap the October price cap increase altogether and fund the £40bn cost via windfall taxes and general taxation.
Another option put forward by various industry figures and consumer interest groups would be the creation of a ‘social’ tariff targeted at lower income households and those using high amounts of energy to power medical equipment.
This would be priced substantially below the level of the cap and paid for either by levies on other customers’ bills or, again, from taxation revenue.
4 August 2022: Household Energy Costs Subject To More Frequent Change
The maximum energy suppliers can be charged per unit of gas and electricity will be reviewed every three months, rather than every six months, it’s been confirmed.
Energy regulator Ofgem has today officially moved from reviewing its energy price cap from twice a year to four times a year. It says that more frequent updates will reflect movements in wholesale gas and electricity costs faster and more accurately.
The cap will now be reviewed every January, April, July and October.
Warning households of a ‘very challenging winter’ to come, Ofgem said the changes would help to stabilise the energy market and reduce the risk of more energy suppliers collapsing – an outcome it believes would push costs up further.
The current price cap is set at £1,971 per year, based on typical use. The next price cap announcement will be made by Ofgem on 26 August and implemented on 1 October.
Energy market analysts Cornwall Insight predict that the cap could hit £3,359 between October and December – and soar to £3,616 between January and March next year.
It’s thought that more frequent reviews of the cap could lessen the ‘rocket and feather effect’ on energy pricing, where prices are quick to rise in line with wholesale prices, but slow to fall when prices drop.
‘No easy answers’
Ofgem’s chief executive, Jonathan Brearley said: “As a result of Russia’s actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before. And that means the cost of supplying electricity and gas to homes has increased considerably.
“The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now. Today’s changes ensure the price cap does its job, making sure customers are only paying the real cost of their energy, but also, that it can adapt to the current volatile market.”
Responding to the news, Gillian Cooper, head of energy policy at Citizens Advice, said: “Changing to a quarterly price cap should limit the risk of any more suppliers going bust, which is a good thing. But our bills are already incredibly high and still rising.
“The government was right to bring in financial support for people, but it may not be enough to keep many families afloat. It must be ready to act again before winter draws in.
“Ofgem must make sure suppliers are helping customers who are struggling to pay. It should hold energy companies to account so people aren’t chased by debt collectors or pushed onto prepayment meters when they can’t keep up with bills.”
2 August: Average Energy Bills Will Exceed £3,000 A Year Until 2024
Average household energy bills are predicted to remain at more than £300 a month until at least 2024, according to new predictions.
Energy analysts Cornwall Insight says the default tariff cap will put bills at more than £3,000 a year for at least the next 15 months, reaching as high as £3,649 by next summer.
The firm says continued volatility in the market caused by uncertainty over Russian gas supplies will see the new energy price cap hit £3,359 between October and December, and £3,616 between January and March 2023.
Cornwall Insight’s Dr Craig Lowrey said: “While the government has pledged some support for October’s energy rise, our cap forecast has increased by over £500 since the funding was proposed, and the truth is the £400 pledged will only scratch the surface of this problem.
“A review of delivering support for the next cap periods should be on the top of the to-do-list for any incoming Prime Minister. As our price cap breakdowns show, tinkering with VAT and policy costs will only make a dent in bills, when it is the high wholesale prices behind the increases.”
The new predictions come as oil giant BP second-quarter profits hit a 14-year high of £6.9 billion today.
Commenting on the results, BP’s chief executive, Bernard Looney said: “Our people have continued to work hard throughout the quarter helping to solve the energy trilemma – secure, affordable and lower carbon energy.”
29 July: Government Reveals Payment Details Of £400 Energy Bill Discount
Details of how households across Great Britain will receive a £400 discount on their energy bills under the Energy Bills Support Scheme has been set out by the government.
For customers paying by direct debit, a discount of £66 will be applied automatically to their bills in October and November. From December through to March 2023, this amount will rise to £67.
The discount will be applied on a monthly basis regardless of whether customers pay their energy bills monthly or quarterly, or have an associated payment card. This is to ensure anyone moving home during the period gets the full benefit of the £400 discount.
Households on a prepayment meter will be issued vouchers from October in the first week of each month by text, email or post, using the contact details that have been registered with the energy supplier. However, these customers will need to action the discount at their usual top-up point – such as a PayPoint or Post Office branch.
The discount applies to all households in Great Britain with a domestic electricity meter – including students and other tenants whose energy bills are already factored into the cost of their rent. In these cases landlords must pass on the discount appropriately, in line with rules set down by energy regulator, Ofgem.
Only 1% of households will not benefit from the Energy Bills Support Scheme according to the government – either because they do not have a domestic electricity meter or a direct relationship with an energy supplier, such as park home residents.
It confirmed that these people will receive equivalent financial support on their energy bills – details of which will be announced in the autumn.
Business and Energy Secretary, Kwasi Kwarteng said: “While no government can control global gas prices, we have a responsibility to step in where we can and this significant £400 discount on energy bills we’re providing will go some way to help millions of families over the colder months.”
The government stressed that in all cases, no household should be asked for bank details at any point.
28 July : Sunak Pledges To Cut VAT As Forecasts Put New Cap At £3,500
Respected energy market analysts Cornwall Insight are predicting that the energy price cap, currently £1,971, will rise by almost 80% in October to around £3,500 a year for a typical household. The new level will be announced on 26 August.
Wholesale prices – which determine the level of the cap – have increased dramatically in recent days due to the reduction in supply from Russia to the European Union.
There are fears the cap could rise towards £4,000 in January 2023, stretching household budgets well beyond breaking point for millions. Commentators are calling for increased intervention by the government to help bill-payers meet the mounting costs.
MPs are urging the regulator, Ofgem, to develop a so-called social tariff to make energy affordable for those on the lowest incomes.
Rishi Sunak has pledged to scrap the 5% cost of VAT on household energy bills as part of his campaign to become the new Conservative Party leader and Prime Minister on 5 September.
The former Chancellor said that if the new price cap on energy bills – due to be announced by regulator Ofgem on 26 August and implemented on 1 October this year – exceeds £3,000, he will scrap VAT on energy for the next 12 months, saving the average household around £160.
Mr Sunak has previously opposed calls for VAT to be removed from energy bills, but his supporters deny he is performing a u-turn given the change would be temporary.
The latest estimates from energy analysts, Cornwall Insights, forecast the new cap will stand at £3,244, up from the current figure of £1,971.
The energy price cap refers to the maximum amount that energy suppliers are permitted to charge per kWh of gas and electricity (or the ‘unit rate’) each year – and also incorporates a maximum daily ‘standing charge’ which is the cost of getting the power to your home.
The proposed VAT cut would be in addition to the £400 windfall payment towards electricity bills that Rishi Sunak, as Chancellor, announced in May under the Energy Bills Support Scheme.
The £400 will be automatically added to the balance of every household’s electricity energy account over the six months starting from October. If you are on a prepayment meter, £400 will either be added to your meter balance or paid in vouchers.
A package of other measures aimed at those on means-tested benefits has also been announced (see stories below).
Rishi Sunak’s VAT pledge – the first tax cut he has unveiled in his campaign to become Conservative party leader – would be part of his ‘Winter Plan’ which he says will address inflation and the general cost of living.
Ofgem under attack
Earlier this week, MPs on the Business, Energy, Industry & Science committee were deeply critical of Ofgem’s performance in recent years, saying the collapse of the energy supplier market (30 companies have gone bust in the past 18 months and there are no tariffs available below the level of the price cap) could have been mitigated through more robust regulation.
The MPs said: “Ofgem has proved incompetent as the regulatory authority of the energy retail market over the last decade. It allowed suppliers to enter the market without ensuring they had access to sufficient capital, acceptable business plans, and were run by individuals with relevant expertise.
“The regulator enabled poorly capitalised suppliers to be overly reliant on customer credit balances and operate with inadequate hedging, leaving the market ill-equipped to absorb wholesale price increases. The rules that were in place were not enforced and Ofgem did not understand the business models of the suppliers it is mandated to supervise.
“The Government prioritised competition over effective market regulation and overlooked Ofgem’s lack of supervision of this essential market.”
Ofgem responded by saying it is working to reform the entire market.
Looking ahead to the impact of the higher price cap, the MPs suggested the introduction of a ‘social tariff’, deliberately priced at less than cost, to help those most in need.
They said: “The Government should consider the introduction of a social tariff for the most vulnerable customers and a relative tariff for the rest of the market.
“The impact of the energy price crisis on households is ongoing and severe, particularly in the context of the cost-of-living crisis, and is likely to cause an unacceptable rise in fuel poverty and hardship this winter. While we welcome the Government’s May 2022 support package, it is no longer sufficient to respond to expected price increases come October.
“The Government must immediately update its support, targeting this at customers who are on low incomes, fuel poor, and in vulnerable circumstances, and develop a scheme to support vulnerable customers to accelerate the repayment of energy debt resulting from this crisis.”
13 July: Regulator Cracks Whip On Operational Standards
Energy market regulator, Ofgem, has released its analysis of how suppliers adjusted customer direct debit payments earlier this year. Many households saw steep increases, with 500,000 payments increasing by more than 100%, writes Candiece Cyrus.
The review found that:
- over 7 million energy consumers (out of an estimated 11 million) on Standard Variable Tariffs (SVT) saw a direct debit increase between February and April 2022
- average increase was 62%, reflecting the increased cost of gas
- around 500,000 households saw an increase of more than 100%. All customers whose direct debit was increased by 100% or more between 1 February and 30 April 2022 will be assessed by their supplier to determine whether the uplift was appropriate
- no evidence was evidence of unjustifiably high direct debits
- some suppliers’ processes are not as robust as they could be, and that this could lead to inconsistent, incorrect or poor treatment for customers
- there is a lack of formally documented policies and processes within some suppliers, which risks inconsistent and poor consumer outcomes.
Of 17 large suppliers in the market, four – Ecotricity, Good Energy, Green Energy UK, Utilita Energy – had moderate to severe weaknesses in their processes and controls.
Ofgem is engaging with these firms to drive “rapid and robust improvements” to processes and a reassessment of customer direct debits where necessary. If these suppliers don’t improve quickly enough, Ofgem says it will consider enforcement action.
Two firms, TruEnergy and UK Energy Incubator Hub (UKEIH), were found to have severe weaknesses. UKEIH has since ceased to trade, with its customers taken on by Octopus on 9 July. Enforcement action against TruEnergy is being considered.
Bulb, E.ON, Octopus Energy, Outfox the Market, Ovo, Shell and Utility Warehouse were found to have some weaknesses or gaps in their processes that could lead to poor consumer outcomes. Ofgem has started compliance engagement with these suppliers
No significant issues were found at British Gas, EDF, ScottishPower and SO Energy, although Ofgem says it will work with these suppliers for continuous improvement. The firms will be asked to review customer direct debits to ensure they are correct, as an additional assurance for consumers.
The companies involved must lay out their plans for rectifying any issues within two weeks, for Ofgem to approve.
Ofgem can force companies to take action to improve operations, fine companies and ban them from taking on new customers if adequate improvement has not been made.
Where appropriate, Ofgem expects suppliers to adjust any miscalculations, including making repayments if needed, and consider whether a goodwill payment is warranted.
8 July: Analyst Says Cap Will Smash £3k Barrier In October And Soar Further In January
Households are facing yet more financial pressure following analyst Cornwall Insight’s amended prediction that the Ofgem energy price cap will rise to £3,244 in October, up from its current £1,971 and significantly higher that the £2,980 it mooted last month.
The firm says the cap, which limits how much energy firms can charge for units of energy and standing charges, will rise further to £3,363 in January 2023. It previously forecast the cap to be £3,003 at that point.
The cap is reviewed every six months, and rose to its present level from £1,277 in April. After October’s increase, it will be reviewed every three months to allow greater responsiveness to movements in wholesale energy prices.
The figures used are for the annual cost of energy for a typical household on a standard variable rate tariff paying by direct debit. The cap does not impose a limit on the size of bills, with costs determined by usage.
If Cornwall Insight’s estimates prove accurate, bills will have increased by over 160% in the months between March 2022 and January 2023 as a result of rising wholesale costs (see stories below).
The government has announced a package of measures to help people battle against the cost of living crisis, including cash payments to those on means-tested benefits and £400 off electricity bills for every household in the autumn.
It remains to be seen how recent political turmoil, including the resignation of Boris Johnson as leader of the Conservative Party and the subsequent leadership election, will affect future plans to tackle high levels of inflation across all sectors of the economy.
7 July: Energy Security Bill Extends Price Cap, Pledges Action On Green Initiatives
The government has included measures for tackling rising energy costs, continuing the rollout of energy smart meters and improving protection against cyber threats on smart appliances, in its Energy Security Bill, which was introduced into parliament yesterday.
The ambition is to generate £100 billion of private sector investment into the energy sector by 2030, with hydrogen, offshore wind and heat pumps being promoted as new sources of energy supply.
Given the government upheaval following mass resignations in the run-up to Boris Johnson’s resignation as leader of the Conservative party, the Bill may be delayed in its passing through Parliament.
The Bill makes provision for the energy price cap to be retained beyond its original end-date of 2023, the aim being to maintain relatively low energy costs for 11 million households on default/standard variable tariffs and four million on prepayment meters.
The cap limits how much energy suppliers can charge households per unit of gas and electricity, along with a standing charge, while reflecting fluctuations in wholesale energy prices.
The last change to the cap was in April, when it soared by 54% to £1,971 a year for households with average energy consumption. For households on prepayment meter tariffs, it rose to £2,017 a year. The increase was the result of higher wholesale prices due to increasing international demand and pressure on supplies because of the war in Ukraine.
Energy analytics firm Cornwall Insight forecasts the cap will hit £3,244 in October and £3,363 in January next year.
Dame Clare Moriarty of consumer advice charity Citizens Advice, supports the price cap extension but said more short term measures are needed to help households with energy costs: “With millions of people already struggling to make ends meet, it’s a relief to see the government extend the price cap beyond 2023.
“Yet much of what we’re paying for our energy is going straight out the window, because so many of our homes are draughty and poorly insulated.
“We’re glad the government is taking a longer-term view on supporting people with energy bills, but it must bring in energy efficiency measures as a matter of urgency, to help families stay warm this winter.”
The new Bill also contains measures to continue the rollout of smart meters to households and small businesses across Britain by the end of 2025. It aims to review suppliers’ installation targets for the last two years of the rollout in 2023, and review the whole smart metering system after 2025.
Smart meters display how much energy is being used, along with the cost, in real-time, allowing consumers to see where they can reduce their energy usage and save money.
Smart meters would also help customers to see the energy they may be saving on time-of-use tariffs, which may be introduced into the UK in the coming months. These tariffs encourage households to use off-peak energy supplies – for instance, to recharge an electric car battery – to benefit from lower prices, and to spread demand around the clock.
The Bill will also help prevent ‘cyber hacking’ of smart appliances such as electric vehicle charge points and smart heat pumps by giving the government more powers to introduce minimum technical requirements for security and data privacy.
The government will also have the power to regulate companies who remotely operate these appliances.
Kwasi Kwarteng, business and energy secretary, said: “To ensure we are no longer held hostage by rogue states and volatile markets, we must accelerate plans to build a truly clean, affordable, home-grown energy system in Britain.
“This is the biggest reform of our energy system in a decade. We’re going to slash red tape, get investment into the UK, and grab as much global market share as possible in new technologies to make this plan a reality.”
Dhara Vyas at trade association Energy UK said: “With the cost of energy reaching unprecedented levels it’s right that the government urgently legislates to protect consumers, while also delivering frameworks and regulation to support the decarbonisation of the UK economy so that it reduces bills in the long term.”
23 June: Audit Office Slams Lax Ofgem Regulation For Enabling Weak Companies To Operate
Energy customers will pay an estimated £2.7 billion to cover the cost of moving 2.4 million customers to new suppliers following the closure of 28 energy firms since June 2021, according to the National Audit Office (NAO), the independent Parliamentary body that scrutinises public spending.
NAO was critical of the role played in regulating the energy market by Ofgem, which is responsible for managing the fall-out when a supplier goes to the wall.
The estimated cost of £94 per household, will be spread across all energy customers, not only those whose firms failed.
According to NAO, Ofgem’s approach to licensing and monitoring suppliers over previous years increased the risk of firms failing, although NAO said considerable hikes in wholesale energy prices were the main cause.
Gareth Davies, head of NAO said: “Ofgem and the Department for Business, Energy & Industrial Strategy (BEIS) ensured that the vast majority of consumers faced no disruption to their energy supply when their provider failed.
“However, by allowing so many suppliers with weak finances to enter the market, and by failing to imagine that there could be a long period of volatility in energy prices, Ofgem allowed a market to develop that was vulnerable to large-scale shocks.
“Consumers have borne the brunt of supplier failures at a time when many households are already under significant financial strain having seen their bills go up to record levels. A supplier market must be developed that truly works for consumers.”
NOA said that, in the years to 2018, Ofgem did not scrutinise the financial position of energy firms when they applied for a licence or after they entered the market. While it began tightening rules in 2018, NOA said Ofgem did not address risks with existing suppliers until 2021.
NAO said Ofgem should “define a set of objectives for its regulation of the retail market around price, stability, and innovation, against which it should review and report its performance at least annually”.
An Ofgem spokesperson said: “Ofgem accepts the findings of the NAO report, which aligns with our own conclusions and the recommendations from the independent Oxera report we commissioned, and we are already working hard to address all of the issues raised.
“While the once-in-a-generation global energy price shock would have resulted in market exits under any regulatory framework, we’ve already been clear that suppliers and Ofgem’s financial resilience regime were not robust enough. This contributed to a significant number of failures since August 2021.
“We welcome the NAO’s recognition that Ofgem began tightening the rules in 2018 and has continued to do so through to 2022. Our announcement this week continues this process with protection of customer credit balances and tough new measures to improve the financial health of energy suppliers (see story below).
“While no regulator can, or should, guarantee companies will not fail in the future, we will continue to take a whole-market approach to further strengthen the regulatory regime, ensuring a fair and robust market for consumers which keeps costs fair as we move away from fossils fuels and towards affordable, green, home-grown energy.”
NOA says the estimated £94 cost per household to cover the administration of the customer reallocation process could rise or fall as the cost of firms exiting the market is uncertain.
An additional cost to run energy firm Bulb Energy may also be added. As a larger supplier with 1.6 million customers, Bulb Energy was put into special administration last year. The government has spent £0.9 billion on an administrator to run the company in 2021-2022 and budgeted another £1 billion to run it during 2022-23.
20 June: Regulator Stops Firms Using Customer Funds As ‘Interest-Free Credit Card’
Ofgem, the energy market regulator, is introducing financial controls to reduce the likelihood of suppliers going bust. And if there are corporate failures in the future, it wants to protect consumers from the cost of handling the administrative fall-out.
Since September 2021, 28 energy suppliers collapsed, leaving all households to share the tab for reallocating their customers to new suppliers and protecting any credit balances they had with the defunct supplier.
This added £94 to every households’ annual energy costs.
Ofgem is proposing:
- improvements to the financial health to reduce the risk of failures
- action to prevent the costs of protecting credit balances and mandatory green levies falling to consumers if a company fails
- tighter rules on the level of direct debits suppliers can charge customers, to ensure credit balances do not become excessive.
Jonathan Brearley, CEO of Ofgem, said: “The energy market remains incredibly volatile and there are a number of huge geopolitical issues continuing to apply massive pressure. Ofgem is working to ensure suppliers shore up their positions so they can weather the ongoing storm.
“By ensuring that suppliers are operating well-financed, sustainable and more resilient business models, we can avoid the supplier failures we saw last year which caused huge stress and worry and added costs to everyone’s bills.
“But if some do still fail, consumer credit balances and green levy/renewables payments will be protected.”
Consumer groups have long criticised the system that allows companies to dip into their customers’ account credits to bankroll their operations – Mr Brearley conceded that such balances “are used by some suppliers like an interest free company credit card.”
The idea of the reform is that suppliers will be obliged to have enough working capital to operate without putting their customers’ credit balances at risk. Ofgem has been criticised in the past for allowing dozens of companies to enter the market in the last 10 years without adequate scrutiny of their financial strength.
Ofgem says it wants to build longer-term resilience by encouraging sustainable business models and stopping risky behaviour. It has developed stricter entry requirements for new suppliers and introduced new tests to ensure people who start and run energy companies are fit and proper to do so.
15 June: £326 Payment In Accounts Next Month, £324 In Autumn
The government has announced that the first of two cost-of-living cash support payments totalling £650 will be made from 14 July onwards to eight million UK households in receipt of means-tested benefits.
The first payment of £326 will be made direct to recipients’ bank accounts by the end of July.
To be eligible for the first instalment, claimants needed to be in receipt of one of the following benefits, or have begun a claim which is later successful, as of 25 May 2022:
- Universal Credit
- Income-based Jobseekers Allowance
- Income-related Employment and Support Allowance
- Income Support
- Working Tax Credit
- Child Tax Credit
- Pension Credit.
This payment will be tax-free, will not count towards the benefit cap, and will not have any impact on existing benefit awards. The second instalment of £324 will follow in the autumn at a date to be decided, with details of eligibility provided in due course.
The £650 payment to low-income households was announced in May by the Chancellor, Rishi Sunak MP, alongside a package of other financial support measure. See story below.
26 May: Chancellor Unveils £15bn Package To Counter Energy Bill Hike
UPDATE 27 MAY: Ofgem, the energy regulator, is warning people not to fall for scams where criminals say it is necessary to register for the payments or the bill discount listed below, before inviting recipients to provide bank details or click through to fake websites. Ofgem has issued no such notices or requests, so any such email, text or other communication should be ignored and reported to Action Fraud in England, Wales and Northern Ireland or to Police Scotland.
Rishi Sunak MP, Chancellor of the Exchequer, has presented a £15 billion package of measures designed to help households afford the expected steep increase in energy bills later this year.
All households will see £400 automatically cut from their bills in the autumn, with no need to repay, while those on means-tested benefits, pensioners and those on disability benefits will receive lump sum cash payments direct to their bank accounts. There will be no need to apply.
The energy bills price cap, managed by the market regulator, Ofgem, is expected to rise to around £2,800 a year for typical households on 1 October, up from £1,971. The current figure for households with a prepayment meter is £2,017 a year.
Ofgem’s chief, Jonathan Brearley, confirmed the £2,800 figure earlier this week (see story below).
The Chancellor also announced an energy profits levy on oil and gas production companies, which have enjoyed soaring profits due to high wholesale prices – this is expected to raise £5 billion.
The government is also exploring whether such a ‘windfall’ tax could be extended to the electricity generation sector.
The measures announced today include:
- £650 cash payment (in two instalments in July and the autumn) to eight million households on means-tested benefits
- £300 cash payment to pensioner households via an increase in the Winter Fuel Payment
- £150 cash payment to those in receipt of disability benefits, some of whom may also qualify for the £650 payment.
Additionally, Mr Sunak said that the £200 energy bill grant revealed in February and due to be deducted from all household electricity bills in October will be doubled to £400.
Crucially, he said it will not need to be repaid. Originally, the plan was for £40 a year to be deducted from bills for five years to recoup the original £200 grant.
Benefits calculation
As part of his cost-of-living address to Parliament, the Chancellor announced that benefits payable in the UK from April 2023, including the state pension, will rise in line with consumer prices as measured in September.
This reinstates the ‘triple lock’, which sees increases each tax year by the highest of three measures: consumer price inflation, average wage growth, or 2.5%.
The government opted to suspend the triple lock for the 2022/23 tax year in response to the pandemic, but the Chancellor has announced it will be reinstated this September for 2023 increases.
The most recent CPI figure from April this year, as calculated by the Office for National Statistics, is 9%.
The Bank of England and other financial commentators have warned that inflation could continue to remain stubbornly high for the remainder of 2022 and potentially beyond.
If that’s the case, then the new benefit calculation will provide a significant boost to the state pension worth several hundred pounds a year for the 2023/24 tax year. The full UK state pension currently stands at £185.15.
Energy Profits Levy
In today’s speech, the Chancellor announced a Temporary Energy Profits Levy as part of the government’s cost of living support package.
Oil and gas companies will face an additional 25% tax on profits, taking their effective rate from 40% to 65%. This is a temporary measure that will be phased out when oil and gas prices “return to historically more normal levels”.
Mr Sunak mentioned that a ‘sunset clause’ will be written into the legislation, with the expectation that the temporary uplift in tax rates will cease at the end of 2025.
He also announced a new Investment Allowance to soften the blow for oil and gas companies. Companies will now receive 90% in tax relief for every £1 invested, almost double the previous level. Mr Sunak stated that “companies will have a new and significant incentive to reinvest their profits.”
Mr Sunak made reference to the “extraordinary” profits also being made in the electricity generation sector and pointed out that France, Italy, Spain and Greece have already taken measures to correct this.
The government is exploring whether generator companies should also face a profits levy.
Mr Sunak estimated that the Energy Profits Levy on oil and gas producers will raise £5 billion over the next year to help fund the £15 billion of support measures announced today.
24 May: October Energy Price Cap Could Rise To £2,800, Says Ofgem Boss
Average household energy bills could jump by more than £800 a year this autumn when the new energy price cap takes effect.
Jonathan Brearley, chief executive of energy regulator Ofgem, told MPs on the cross-party Business, Energy and Industrial Strategy Parliamentary committee that he expected the energy price cap to rise to “around £2,800” when it is recalculated later this summer.
The current cap, implemented in April, stands at £1,971.
Such a move would worsen the UK’s current cost-of-living crisis already being felt by millions of households.
Brearley attributed the rise to continued volatility in the gas market. This has been exacerbated by the Russian invasion of Ukraine, its impact on supplies and the subsequent knock-on for the price of fuel.
Volatile energy prices have already caused 30 UK energy companies to go bust since the beginning of 2021. Collapses such as these can also drive consumer prices higher because of the cost of reallocating customers of failed firms to other suppliers.
The price cap, which limits how much energy firms can charge for each unit of gas and electricity supplied to domestic customers, along with any standing charge, rose by 54% on 1 April this year.
The increase this spring meant that the bill for a household with average consumption, on a dual-fuel standard variable rate tariff and paying by direct debit, rose from the previous price cap level of £1,277 to just under £1,971.
Pre-payment meter customers also experienced a hike in prices – from £1,309 to £2,017 – also based on typical usage.
The cap, which is calculated twice-yearly at the moment, although Ofgem is pushing for it to be reviewed quarterly from the autumn (see stories below), applies to around 22 million households in England, Scotland and Wales. Northern Ireland does not have a price cap.
Brearley told MPs that energy price rises were a “once in a generation event not seen since the oil crisis in the 1970s”.
He also warned that the number of people in fuel poverty – defined as being when a household needs to spend more than 10% of its disposable income on heating its home – could double.
Using the current system of calculation, the price cap will be recalculated this August before being implemented on 1 October. Brearley estimated that, by the autumn, 12 million households could be placed in fuel poverty.
Brearley told MPs: “We are really managing between two versions of events. One where the price falls back down to where it was before, for example if there’s peace in Ukraine, but one where prices could go even further if we were to see, for example, a disruptive interruption of gas from Russia.”
The Ofgem boss also apologised for regulatory shortcomings and admitted that had financial controls been in place sooner for suppliers, fewer firms would have gone bust in the past year due to being unprepared for the sharp rise in wholesale energy prices.
The estimated jump in the price cap is likely to renew calls on the government to take further action to head off the impact on households facing soaring energy costs. One solution being suggested by opposition parties and campaigners is a windfall tax on energy companies which have enjoyed bumper profits in the first part of this year.
18 May: Analyst Predicts 5% Bills Reduction Under Quarterly Cap
Energy research specialist Cornwall Insight today provided analysis of the likely effect on energy bills of moving to a quarterly price cap review, compared to the current price cap review every six months (see story below).
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “The devil will be in the detail. With greater complexity comes greater risk of unintended consequences. It would have been useful to see more detailed evaluation of price cap levels for the new world against the old from a consumer perspective.”
Cornwall Insight is forecasting that typical annual energy bills would rise to £2,750 this winter under the current price cap system. Under a quarterly review of the price cap, it predicts that bills would rise to £2,600.
While this remains a significant increase from the current price cap level of £1,971 a year for a household with average consumption, it would mean a 5% reduction compared to the six-monthly review period.
Ofgem, the energy market regulator, is undertaking a formal consultation of its proposed move to a three-monthly review of the price cap. It favours the move because, it says, it would protect energy suppliers who would be able to move their energy prices in line with changes in wholesale rates.
Any changes would come into effect from October 2022 when the current price cap is due to change (the new level will be announced in August).
16 May: Ofgem Seeks Quarterly Cap Review Cycle
The UK’s energy regulator, Ofgem, is seeking reforms that would see its energy price cap adjusted every quarter rather than twice a year.
The cap was introduced in 2019 to protect consumers from unfair pricing, by limiting what energy suppliers can charge. It is currently updated in line with wholesale energy costs every April and October.
Under the proposed reforms, the cap would be updated every three months in January, April, July and October.
The cap, which limits the amount consumers can be charged for each unit of energy used and for associated standing charges for gas and electricity, does not put a ceiling on bills. The more energy used, the higher the bill will be.
At present, the cap is £1,971 for an average household with a dual fuel (gas and electricity) variable rate tariff, paying annually by direct debit. There are fears this could rise to £2,600 or even £3,000 in October.
Last week, the government announced in the Queen’s Speech that the cap, introduced as a temporary measure in 2019, will be extended beyond 2023 in recognition of market conditions (see story below).
Fair price
Jonathan Brearley, Ofgem CEO, said changing to quarterly cap reviews could cut bills: “Our reforms will ensure consumers are paying a fair price for their energy while ensuring resilience across the sector.
“Today’s proposed change would mean the price cap is more reflective of current market prices, and any price falls would be delivered more quickly to consumers.”
Ofgem believes adjusting the price cap every quarter will help energy suppliers remain profitable as wholesale prices rapidly rise and fall, reducing the likelihood of corporate failures.
Volatile prices have caused around 30 UK energy companies to go bust since the beginning of 2021. Collapses such as these can drive consumer prices higher because of the cost of reallocating customers of failed firms to other suppliers.
Mr Brearley added: “The last year has shown that we need to make changes to the price cap so that suppliers are better able to manage risks in these unprecedented market conditions.”
In the midst of a cost-of-living crisis, falling energy bills could ease the strain on UK household budgets. However, if the cost of wholesale energy continued to soar, the bill would be passed onto consumers much more quickly if there were a quarterly cap change in place.
Ofgem will initiate a consultation on the price cap plans today, which will remain open until Tuesday 14 June 2022. If these reforms come into effect, they will be put in place from October 2022.
10 May: Energy Security Bill Extends Ofgem Price Cap Beyond 2023
The Queen’s Speech, delivered by Prince Charles today to outline the government’s legislative programme for the next session of Parliament, included details of an Energy Securities Bill. This is aimed at protecting consumers from steep price hikes via an extension to the official energy price cap regime beyond 2023.
The Bill will also renew national emphasis on the switch to renewable energy sources and encourage households to install heat pumps as an alternative to traditional heating methods that are dependent on fossil fuels.
However, critics have suggested that the government should be taking more urgent action to alleviate the cost of living crisis in general and soaring energy bills in particular. The government has countered by stating that there are no short-term fixes available.
There are fears that the next iteration of the price cap, which will be announced by the regulator Ofgem in August and implemented in October, could reach £3,000 a year from its current level of £1,971 for typical households (see stories below).
The price cap was a temporary measure introduced in 2019 to prevent energy suppliers from making huge profits. The turmoil in the market since wholesale prices escalated at the beginning of 2021 has necessitated its being extended to protect customers from suffering the full extent of costs, hence the announcement today.
Currently, the cap changes twice a year in April and October, but Ofgem is proposing to adjust it more frequently if market conditions dictate.
9 May: Govt Plans To Extend Warm Home Discount In Scotland As Power Chief Demands Drastic Action
The UK government is proposing to expand its Warm Home Discount scheme in Scotland, with around 50,000 extra families being added to the 230,000 that already receive payments.
The £140 payment towards winter electricity bills would also increase to £150, with more suppliers encouraged to participate. The scheme would also be extended to 2025 to 2026.
The aim is to bring the Scottish scheme into line with the comparable schemes in England and Wales.
The government said: “The Warm Home Discount in Scotland will continue to focus support on those in receipt of means-tested benefits such as Universal Credit and Pension Credits, which ensures that rebates go to those on the lowest incomes.
“Energy suppliers can use additional eligibility criteria, as long as the criteria identify households at risk of fuel poverty, subject to approval from (energy regulator) Ofgem.”
You can find out more here about the Warm Home Discount scheme, including eligibility criteria.
Shock proposal
In an interview with the BBC, Keith Anderson, head of Scottish Power, has repeated his calls for vulnerable households to receive a reduction of £1,000 in their energy bills in the autumn, with the cost being met by a £40 increase in the annual bills of other energy customers for five years, starting in 2023.
Mr Anderson first made the proposal when questioned in Parliament last month (see story below). He believes up to 10 million households are at risk of fuel poverty when the next adjustment to the Ofgem price cap is made in October.
He is concerned that the cap will be set too low because Ofgem will use current low gas prices in its calculations, whereas many suppliers have already paid recent high prices for future supplies.
If the cap prevents suppliers from recouping what they have already spent, Mr Anderson said we could see further corporate failures on top of the 30 we have seen in the past 18 months.
This would feed significant additional costs into the system which would ultimately have to be added to customer bills.
Pundits are suggesting that the October price cap figure could land somewhere between £2,500-£3,000 for typical users, up significantly from its current level of £1,971.
3 May: Govt Backs Regulator Over Excessive Direct Debit Increases
Kwasi Kwarteng MP, business and energy secretary, has today confirmed that the energy market regulator, Ofgem, is scrutinising the behaviour of suppliers with regard to excessive increases in customer direct debits, with substantial fines likely if firms continue to transgress.
In a tweet this afternoon, Mr Kwarteng put his voice behind what many customers have been saying in recent weeks – that suppliers have demanded regular payments at a level far in excess of what might be justified by the increase in Ofgem’s price cap on 1 April.
The cap increased by 54%, adding almost £700 to typical annual energy bills for those paying by direct debit for a dual fuel variable rate tariff. The current average price of £1,971 is expected to rise even further in October, when the next cap review is implemented, due to high wholesale prices.
Mr Kwarteng tweeted: “Some energy suppliers have been increasing Direct Debits beyond what is required.
“I can confirm Ofgem has today issued Compliance Reviews. Suppliers have three weeks to respond.
“The regulator will not hesitate to swiftly enforce compliance, including issuing substantial fines.”
Ofgem first raised the issue of supplier bad practice in April when its boss, Jonathan Brearley, said: “We are seeing troubling signs that some companies are reacting to these (market pricing) changes by allowing levels of customer service to deteriorate.
“Concerns have been raised that some suppliers may have been increasing direct debit payments by more than is necessary, or directing customers to tariffs that may not be in their best interest.
“When households are facing massive increases in their energy bills, it is particularly important that suppliers are held to account and bad practices are addressed quickly.”
The compliance reviews will include stricter supervision of how direct debits are handled and how much firms are holding in customer credit balances.
Mr Brearley said: “This work will allow Ofgem to determine if companies are fulfilling their licence conditions and to work with them to rectify deficiencies. Where they fail to do so, we will not hesitate to take swift action to enforce compliance, including issuing substantial fines.”
Ofgem is also cracking down on the practice whereby companies use customer money to prop up their business rather than buy energy. It says this is one of the root causes of the failures of many of those suppliers who exited the market.
Mr Brearley said: “Customer credit balances should only be used to reconcile bills, not as a source of risk-free capital. That is why we are considering options to ring-fence credit balances and renewables payments in such a way that they would be protected if a supplier fails.”
Around 30 companies have gone bust since the start of 2021.
Energy Chiefs Demand ‘Massive Shift’ In Govt Policy
CEOs of some of the UK’s largest energy companies are calling on the government to provide urgent and concrete financial support to struggling customers facing huge increases in their bills.
Speaking at a meeting of the Business, Energy & Industry Strategy Parliamentary Select Committee today, Keith Anderson, head of Scottish Power, told MPs that the current affordability crisis “is of a size and scale beyond what the industry can deal with.”
Energy prices leapt by 54% on 1 April when the market price cap, set by the regulator, Ofgem, was increased to take account of higher wholesale costs in recent months. Average annual bills now stand at around £2,000.
The cap is expected to increase further on 1 October due to the impact of the war in Ukraine on energy supplies. Mr Anderson said the effect of the October cap change will be “horrific”.
One proposal for government intervention is the creation of a ‘deficit fund’, which would see £1,000 removed from the annual bills of customers deemed to be in fuel poverty or on a prepayment meter. This fund would then be repaid over 10 years by the entire energy customer base.
Mr Anderson said this short-term measure should lead to the creation of a discounted social tariff, again aimed at those in fuel poverty and those on a prepayment deal.
Michael Lewis, head of Eon, said the government could also remove VAT from energy bills (it is charged at 5%) and transfer environmental levies from bills into the general taxation burden. Taken together, these measures could reduce annual average bills by £250 – £300.
Further measures could include extending the Warm Home Discount, worth £150 a year next winter, to a larger number of people, and increasing the £200 energy rebate that will be paid by the government to all UK domestic electricity accounts in the autumn.
Mr Lewis also called for the roll-out of energy smart meters to be made mandatory to help improve efficiency across the market.
Chris O’Shea, head of British Gas owner Centrica, said the regulation of the industry should be overhauled to prevent future corporate failures. Around 30 energy firms have collapsed in the past 12 months, with the resultant administration costs adding £68 to the standing charges paid by every energy customer.
Mr O’Shea told the cross-party committee of MPs that he fears more business failures next winter, with the grim possibility that they could dwarf what has gone before.
The assembled energy bosses expressed support for the announcement last week by the regulator, Ofgem, that it will pursue tighter controls to prevent companies from using customer funds to prop up their businesses.
They also backed moves to stop energy companies increasing customer direct debits by disproportionate amounts, and to bar them from moving customers to fixed rate tariffs costing more than standard variable rate tariffs.
Ofgem has threatened to levy substantial fines on companies that do not comply with its rules.
19 April: MPs To Grill Energy Chiefs Today
The cross-party Business, Energy & Industrial Strategy Committee will today quiz representatives of four major energy firms on the support they are providing customers in the wake of a 54% hike in average bills on 1 April.
CEOs from Centrica (owner of British Gas), E.ON, EDF and ScottishPower will face MPs at 10:30 this morning.
MPs are expected to focus on the issue of suppliers reportedly increasing direct debits beyond a level consistent with the new energy price cap of £1,971 a year for typical consumption.
There have also been reports of customers being forced onto expensive fixed rate deals instead of variable tariffs, which are cap-controlled.
MPs will also question the bosses on how they will help implement the government’s Energy Security Strategy (see story below). Other topics on the agenda include the delivery of the £200 energy bill rebate scheme in the autumn, the future of the price cap, and whether the market will remain competitive.
Also scheduled to appear before the committee are the bosses of collapsed suppliers Bulb and Avro, who will be scrutinised over the management of their firms before they went out of business last year.
A significant part of the increase in the price cap this month is attributed to the cost of reallocating customers from the 29 firms that have ceased trading since the energy crisis started to bite last summer with a sharp increase in wholesale prices.
The Committee says the failure of Avro, which folded owing £90m to customers, is expected to cost consumers £700 million.
Bulb was effectively nationalised – put into a Special Regime overseen by the regulator, Ofgem, and the government – after being deemed too big to fail. The government is trying to find a buyer to take it over amid reports that its life support arrangement could hit £3 billion.
7 April: Govt Energy Strategy Adopts Long Term Focus, Ignores Immediate Price Crisis
The government has published its British Energy Security Strategy, with the emphasis on moving to low-carbon generation and boosting UK energy self-sufficiency in the next 10-15 years. But the initiative does little to address pressing concerns about the affordability of energy during the current cost of living crisis.
The government says: “Consumer bills will be lower this decade than they otherwise would be as a result of the measures this government has taken.”
There have been calls from opposition MPs and consumer advocates for the government to call an emergency Budget to address the squeeze on household finances. Critics of the overall strategic approach have also argued that more emphasis should be given to improving energy efficiency, for example, by greater subsidies for insulation of UK housing stock.
The new energy strategy says the government will support the production of domestic oil and gas in the nearer term, but this activity is unlikely to reduce the likelihood of another hike in the domestic energy price cap in October.
The cap – adjusted twice yearly – reflects movements in wholesale energy prices. October’s cap will take into account prices in the six months to the end of July, which are being inflated by fears of supply, in part due to the conflict in Ukraine.
The government’s ambition to de-carbonise energy production will see the acceleration of the deployment of wind, new nuclear, solar and hydrogen. It says this could see 95% of electricity by 2030 being low carbon – there is a legal requirement for the UK to achieve net zero carbon emissions by 2050.
Some critics have suggested that energy bills – many of which increased by 54% on 1 April when the price cap was increased – could be reduced by £100 in the short-term by the removal of so-called ‘green levies’, which help fund environmentally-friendly energy initiatives.
Nuclear initiative
The government strategy says nuclear generation – which it calls a safe, clean, and reliable source of power – will represent up to around 25% of the UK’s projected electricity demand.
A new government body, Great British Nuclear, is being set up to bring forward new projects “as soon as possible this decade”, including Wylfa site in Anglesey. The strategy document says up to eight new reactors could be built.
Other plans include:
- Offshore wind: There are plans to generate up to 50GW by 2030 – sufficient to power all UK homes. Planning reforms are intended to cut approval times for new offshore wind farms from four years to one year.
- Onshore wind: The government will explore the potential to reward communities who host new onshore wind infrastructure with guaranteed lower energy bills. This would potentially counter objections from those opposed to onshore wind farms on aesthetic grounds.
- Oil and gas: Licences for new North Sea oil and gas projects will be issued later this year. This is a controversial move that will draw fire from the environmental lobby, but the government says domestic production of fossil fuels will boost UK fuel security and that producing gas in the UK has a lower carbon footprint than importing it from abroad.
- Heat pumps: There will be Heat Pump Investment Accelerator Competition in 2022 worth up to £30 million to make British heat pumps, which reduce demand for gas.Grants of £5,000 are currently available to households looking to install heat pumps.
- Solar: The government wants to increase the UK’s solar electricity generation capacity by a factor of five by 2035. It says it will consult on the planning rules for solar projects, particularly on domestic and commercial rooftops.
- Hydrogen: The strategy wants to double hydrogen production capacity by 2030, with at least half coming from green hydrogen, with excess offshore wind power being used to bring down costs.
31 March: Ofgem Wades Into Energy Meter Reading Furore
Energy market regulator Ofgem is ‘engaging with suppliers’ following multiple reports of customers being unable to submit meter readings ahead of the 54% increase in its price cap, effective tomorrow (1 April).
Customers are trying to submit up-to-the-minute readings ahead of the price increase, which affects those on variable rate tariffs, so that they can ensure they pay today’s lower rate for the energy they use in March.
The fear is that, if they rely on their supplier’s estimate of how much energy they have used, some of their March usage might be billed at the higher, April rate.
The cap on prepayment meters bills is also increasing tomorrow, but as customers here are on pay-as-you-go terms, there is no need to log a meter reading.
In a series of tweets this afternoon, Ofgem said: “We are aware some energy suppliers are having trouble with their websites today, affecting people being able to submit meter readings or access their online account. We are engaging with suppliers on the issue.
“Consumers who experience issues should contact their supplier straight away, and take a picture of their meter reading if high contact volumes mean they are unable to get through.
“Suppliers must take all reasonable steps to provide ways for consumers to access their account information, including submitting meter readings.”
A number of replies to the tweets pointed out that consumers are not able to contact their suppliers precisely because websites and phonelines have been overwhelmed by the number of people trying to get in touch.
Anyone worried about reaching their supplier today is advised to take a photograph of their meters (gas and electricity) and email them to their own account so they have a record of usage up to today’s date.
This can then be submitted at a later date or kept to hand in case of a dispute in the future.
Those with smart meters will have their readings sent automatically to their supplier, but they are of course at liberty to take and retain a photograph if they wish.
Those on fixed rate energy tariffs will see no change to their bills from tomorrow as their deals are outside the scope of the price cap.
“People are worried”
In another tweet thread, Emma Pinchbeck of supplier trade body Energy UK, said websites are down because of the scale of the customer inquiries: “People are very worried, and of course they’ve seen consumer groups say today is the deadline for submitting readings.
“We’re just checking in with members but note: a) some suppliers won’t implement new prices tomorrow b) most will take meter readings after today and have put other measures in place for submission. Don’t panic, check meter, keep reading: many suppliers have info on their twitter.
“Meanwhile, website & call centre failures for industry & consumer groups reflect scale of concern. It highlights how scary these price rises are, and what industry has been saying to Gov: the high gas price isn’t just an issue for vulnerable customers, and more needs to be done.”
Yü Energy Takes On Whoop, Xcel Power Customers
Yü Energy Retail Limited, a firm supplying 20,000 UK premises, is taking on customers from Whoop Energy and Xcel Power Limited, which ceased trading last week (see story below).
As it the case when suppliers go out of business, the market regulator, Ofgem, ran a competitive tendering process and identified Yü Energy as the best candidate for customers of the failed firms.
Yü Energy is primarily known as a business energy supplier, but it posted a reassuring message on its website to the the 50 domestic customers moving across from Whoop: “Ofgem decided that we were the best people for the job. We proved we were able to take over your supply and are committed to bringing you on board. Yü Energy is a strong business with a long-term strategy and the ability to ride out the current challenges in the energy industry.”
Domestic customers will be transferred to a tariff protected by the Ofgem price cap (see stories below). Business energy tariffs are not governed by the price cap. Commercial customers will be moved to a fixed rate tariff, with prices announced in the coming days.
Anyone wishing to switch supplier can shop around but are advised to wait until the transfer has been completed. Customers will not be charged exit fees if they decide to switch to another supplier. For more information customers can visit www.yuenergy.co.uk.
At present, there are no domestic tariffs available for less than the current price cap, which is in place until 31 March. On 1 April it will increase by 54% to take account of rising wholesale prices.
The cap for a household with average consumption on a dual-fuel standard variable rate tariff, paying by direct debit, will rise by £693 from £1,277 to just under £1,971. Prepayment meter customers will see an increase of £708 from £1,309 to £2,017, again for typical usage.
Actual bills will always be determined by consumption, so the cap is not a limit on how much will be charged to any given consumer.
Customers’ supplies will continue as normal following the switch over to Yü Energy on 19 February 2022. They will be contacted over the coming days about the changes. They should take a meter reading as soon as possible.
18 February: Further Two Firms Cease Trading
Two of the energy markets smaller players, Whoop Energy and Xcel Power, have announced they are ceasing to trade.
This brings to 28 the number of firms that have closed their doors since the current energy market crisis deepened last August with a spike in wholesale prices.
Whoop Energy suppliers gas and electricity to 262 customer accounts – 50 domestic and 212 non-domestic. Xcel Power has 274 non-domestic gas customers.
Under the safety net protocol operated by Ofgem’s, the energy market regulator, customers’ supply will continue and funds that domestic customers have paid into their accounts will be protected, where they are in credit.
Domestic customers will also be protected by the energy price cap when being switched to a new supplier. The price cap, currently £1,277 a year for dual fuel users with average consumption, will rise to £1,971 on 1 April (from £1,309 to £2,017 for those with pre-pay meters).
The existence of the cap has sheltered consumers from the worst impact of rising energy prices, although the forthcoming 54% increase is unprecedented and is forecast to tip millions into financial hardship.
For suppliers, the cap has meant they have been effectively selling energy at a loss, hence the catalogue of corporate failures in recently months.
Customers of Whoop Energy and Xcel Power Ltd will be contacted by their new supplier, which will be chosen by Ofgem, in due course. Ofgem’s advice to affected customers in the meantime is to:
• wait until a new supplier has been appointed and you have been contacted by them in the following weeks before looking to switch to another energy supplier.
• take a meter reading ready for when your new supplier contacts you to make the process of transferring customers over to the chosen supplier and honouring any funds that domestic customers have paid into their accounts, where they are in credit, as smooth as possible.
16 February: Ofgem Battles Market Turmoil With ‘Stabilisation’ Measures
With the startling 54% increase in its domestic price cap just six weeks away on 1 April, energy regulator Ofgem has announced two measures designed to improve the stability of the market and shield consumers from further steep increases.
It hopes to reduce the number of companies that might go bust as a result of the continuing high price of gas and electricity on wholesale markets.
The cost of reallocating customers of the 26 companies that have failed since the crisis deepened last summer is estimated to be £4 billion, which will feed through to customers’ bills.
The first measure will be to require suppliers to offer all their tariffs to existing as well as new customers, rather than offer unrealistically cheap deals to new customers to get their business on the books.
According to Ofgem, this will “help to stabilise the market in the short term by acting as a break on unsustainable price competition when cheaper tariffs return and customer switching picks up again.
“It will also limit price discrimination by suppliers and help to improve consumer trust and confidence in the retail market after the challenges of this winter, improving access to cheaper tariffs for consumers who may be less willing or able to switch supplier, particularly those in vulnerable situations.”
The second measure is the potential to levy a market stabilisation charge if wholesale prices fall significantly after the new price cap level takes effect.
This would see companies that are acquiring new customers pay a charge to those losing the business, to smooth out the extreme effects of wholesale price volatility.
Ofgem concedes that, if the charge is triggered, it will reduce “to some degree” the cheapest tariffs available in the market. It adds: “However, there will still be significant savings available to active consumers looking to switch.”
Additionally, the expected reduction in the number of companies going out of business will reduce upward pressure on bills.
Both measures are expected to be removed in the autumn when Ofgem hopes to bring in further reforms to its price cap mechanism.
These include introducing quarterly reviews (at present the cap is reviewed each February and August with any change taking effect in April and August) and a reduction in the notice period suppliers are required to give their customers from two months to one.
9 February: Households ‘Paid’ To Cut Winter Energy Usage
Households will get credit on their energy bills by limiting their energy consumption during peak hours this winter, as part of a new National Grid plan.
The National Grid Electricity System Operator (ESO) is partnering with Octopus Energy to see if, between 11 February and 31 March, it can better match energy demand with supply – and it will offer one-off ‘financial incentives’ to those taking part.
Around 1.4 million Octopus Energy customers with smart meters will be eligible for rewards if they reduce their power consumption below what they’d normally use between one of a range of two-hour time slots each day throughout the two-month trial.
Each day’s two-hour window – 12-2am, 9-11am or 4.30-6.30pm – will be announced by 4pm the previous day, giving those involved the chance to opt in or out. Those who opt in will be able to earn up to 35p of free energy for every kilowatt hour (kWh) they don’t use.
The trial could reduce power demand by as much as 150 Megawatts (MW) during each two-hour event, or 75 megawatt hours (MWh). For context, the average UK household uses around 15,000 kilowatt hours (kWh) of gas and electricity per year – equivalent to 15 MW.
ESO will use data gathered during the pilot to inform its plans to run a zero-carbon grid for certain periods by 2025, and a fully decarbonised grid by 2035. It hopes the data will allow it to balance supply and demand more efficiently, with savings passed on to households.
Isabelle Haigh of ESO said: “Encouraging households to engage in exciting climate-friendly energy opportunities like this trial will be crucial in our transition to net zero.
“System flexibility is vital to help manage and reduce peak electricity demand and keep Britain’s electricity flowing securely.
“This trial will provide valuable insight into how suppliers may be able to utilise domestic flexibility to help reduce stress on the system during high demand, lower balancing costs and deliver consumer benefits.”
Energy prices
The trial comes less than a week after the energy regulator Ofgem announced a 54% increase to its energy price cap for 22 million households in England, Scotland and Wales – up from £1,277 to just under £1,971 for those with average consumption levels.
It means a household with average consumption on a dual-fuel standard variable rate tariff, paying by direct debit, will pay an extra £693 for energy from April 1.
The government responded to the unprecedented increase by announcing £350 worth of support for around 30 million households – comprising a £150 Council Tax rebate and a £200 loan to be repaid over five years from 2023.
4 February: Govt Comes Out Swinging On Energy ‘Myths’
With consumers reeling from the 54% hike in the energy price cap from 1 April announced yesterday (see stories below), the government has published an article – Busted: the 9 big myths on energy in the UK – intended to dispel “some of the popular myths around energy price rises in the UK.”
The effect of the price cap increase will be to push up average annual bills from £1,277 to £1,971 (from £1,309 to £2,017 for those with pre-pay meters).
The scale of the rise, while widely expected, has still proved to be a huge shock for the near-30 million households that will be affected.
Government proposals to soften the blow – a £200 reduction in bills in October (to be repaid over five years) and a £150 Council Tax rebate (that doesn’t need to be repaid) for those in bands A to D to coincide with the cap hike in April – have been branded as inadequate and poorly targeted by consumer groups and opposition parties.
There have been calls for more money to be diverted towards eradicating fuel poverty, which is when required spending on energy pushes a household below the official poverty line.
Commentators are pointing to Shell’s huge increase in operating profits – up to £12 billion for 2021, also announced yesterday – and urging the government to impose a windfall tax on energy production companies that have benefited from a spike in prices on wholesale markets.
There is no indication the government is considering such a move.
We’ve published the government’s article below to give an insight into official thinking on the energy market, and added our own comments under each ‘myth’.
Myth 1. Isn’t the Energy Price Cap causing these problems?
“No, rising energy prices are the result of a global spike in gas prices, which has a number of causes including rebounding global demand as COVID-19 lockdowns ease and a greater liquified natural gas demand in Asia.
“In fact the Energy Price Cap continues to protect millions of customers and ensures they pay a fair price for their energy, despite the sudden rise of wholesale energy costs.
“But in light of continued cost of living pressures, the government has announced a package of support to help households with rising energy bills, worth £9.1 billion in 2022 to 2023.
“This includes:
- a £200 discount on their energy bill this Autumn for domestic electricity customers in Great Britain. This will be paid back automatically over the next 5 years
- a £150 non-repayable rebate in Council Tax bills for all households in Bands A-D in England
- £144 million of discretionary funding for local authorities to support households who need support but are not eligible for the Council Tax rebate
“The devolved administrations are also receiving around £715 million funding through the Barnett formula as usual where UK government support doesn’t cover Scotland, Wales or Northern Ireland.”
We say: Critics argue that, even if a household receives the full £350, this will only be roughly half of the typical increase in bills from 1 April – with £200 of it in the form of a loan in October that will need to be repaid at £40 a year via higher bills for five years, starting 2023.
There are also concerns about the administration of the scheme, with suggestions that some people who do not receive the loan may still have to pay higher bills if they become energy customers in subsequent years.
2. Will the new schemes not just encourage higher prices, rather than more supply?
“No, because the Energy Price Cap remains in place to protect consumers.”
We say: Energy firms will not be able to charge more than the cap for standard variable rate tariffs. But the cap is widely expected to increase again when it is reviewed in August for implementation in October. So while the release of government money will not inflate prices, consumers are still facing a further hike in their bills.
3. Isn’t this all just a chance for oil and gas companies to make massive profits at our expense?
“Neither oil or gas companies or energy supply companies will benefit financially from the new schemes announced today and all the money will be passed through to domestic energy consumers.”
We say: The energy price cap is structured in such a way to prevent energy suppliers making excessive profits – that was the thinking behind its introduction in 2019. But the perception remains that consumers are bearing an unfair burden in an era of high wholesale prices.
4. Why are we still exporting gas to other countries rather than boosting our own supply?
“As an internationally traded commodity, gas is exported and imported in line with price signals. Broadly, the UK imports more than it exports.
“The UK continues to benefit from strong security of gas supply, benefitting from highly diverse sources, including through one of the largest liquified natural gas import infrastructures in Europe.”
We say: Critics point out that the UK’s gas storage capacity has been severely reduced in recent years, leaving the country exposed to short-term price fluctuations because there is no alternative to paying market rates to maintain supply.
5. Why do we keep closing down coal power stations? Wouldn’t this help with keeping energy prices down?
“Closing coal plants is not increasing energy prices. In line with our net zero target, the government has committed to phasing out unabated coal-fired power generation by 2024. Closure of coal units ahead of this date is a commercial decision for the companies involved.”
We say: The government has to balance its commitment to moving to a net zero carbon economy by 2050 with the need to ‘keep the lights on’ in the meantime. It will be forced to make more difficult decisions with regard to the use of carbon fuels, including natural gas, as that date approaches.
If credible, reliable alternatives to fossil fuels are not brought on stream in the near term, gas is likely to remain high in the mix, with all that implies for domestic bills.
6. Why haven’t we upped our domestic gas production in the North Sea or granted new drilling licences?
“Roughly around half the UK’s gas supply comes from domestic sources, and the UK’s gas sector has been maximising production where possible through this winter.
“Most imports come from reliable suppliers such as Norway. We also have one of the largest liquefied natural gas (LNG) infrastructures in Europe.
“We have also been working with oil and gas operators in the UK to develop additional fields. Three new gas streams came online at the end of last year, with more upcoming. However, the biggest factors influencing gas prices are attributable to international activity extending beyond Great Britain’s domestic production.
“Less than 3% of our gas was sourced from Russia in 2020.”
We say: Private companies extracting gas from the North Sea and other fields around the UK sell their products on the open market where they can get the best price. They are under no compulsion to sell into the UK market at a subsidised or controlled cost, and it is hard to see a Conservative government changing this system.
7. Aren’t other countries doing more than the UK?
“It is important to note that higher wholesale gas prices are being faced internationally due to multiple factors in supply and demand – with some countries in Europe in particular facing much more severe security of energy supply challenges than the UK.
“The package of measures announced by the Chancellor will mean millions of households receiving up to £350 to help with the cost of living. That is broadly in line with the support offered by most of our European neighbours, and in many cases is more generous.”
We say: Different countries are adopting different solutions to the general problem of high wholesale prices. For example, the French government has said that energy consumers should only see an increase in bills of 4%, with the national energy operator, EDF, responsible for costs above that level.
However, as EDF is state-owned by the French government, these costs are likely to become part of the country’s general taxation burden, so this in one sense can be seen as financial sleight of hand.
8. Have oil companies been doing share buybacks, rather than investing?
“Decisions on the scale of capital investment in production and the way returns are made to investors are commercial decisions for companies. The UK remains an attractive destination for companies to invest in oil and gas production.”
We say: The Conservative party is rooted in free-market economics. It is hard to see that changing, although conflict in Ukraine, with associated disruption to gas supplies, might mean all bets are off, at least temporarily.
9. Has the UK not gone fast enough on green energy?
“The government is doubling its efforts to generate more clean, affordable power in this country to meet the target of decarbonising Britain’s electricity system by 2035.
“Since 2010 we have increased the percentage of power from renewables from 7% to 43% as of 2020, and our latest allocation round of the successful Contracts for Difference scheme is seeking up to 12 GW of additional renewable capacity. This would be more than the previous 3 rounds combined.”
We say: The government has given itself highly ambitious green energy targets that will require sustained investment. Its progress on these measures will be closely monitored, both by the green lobby and by those concerned with security of supply.
Sustained PR campaign
The government is already grappling with a cost of crisis that includes likely higher mortgage costs following yesterday’s increase in the Bank rate to 0.5%, higher national insurance contributions from April, and inflation above 5% and predicted to hit 7% in the coming months.
The surge in the energy price cap is adding to its woes, and there will be a fresh round of negative reporting when the price cap rise takes effect on 1 April. We can probably expect to see further messaging of this nature in the coming weeks.
Govt Responds To Price Cap Hike With £200 Bills Discount Loan
Close on 30 million households will benefit to the tune of up to £350 in reduced bills and rebates following the 54% rise in the energy price cap announced earlier today (see story below).
The Chancellor Rishi Sunak told the House of Commons this morning that all domestic electricity customers will get £200 off their energy bills from October. Additionally, 80% of households will receive a £150 Council Tax rebate from April.
Energy suppliers will apply the discount to 28 million domestic electricity customers from October, with the Government meeting the costs. The discount will then be recovered from people’s bills in equal £40 instalments over the next five years.
This will begin from 2023, when the government says global wholesale gas prices – the prime reason for the 54% increase in the price cap – are expected to come down.
Households in England in council tax bands A-D will receive a £150 rebate, made directly by local authorities from April. This will not need to be repaid. The government is also making available discretionary funding of £144 million to support vulnerable people and individuals on low incomes that do not pay council tax, or that pay for properties in bands E-H.
Devolved governments in Scotland, Wales and Northern Ireland are expected to receive around £565 million of funding as a result of the Council Tax Energy Rebate in England. Northern Ireland will receive £150 million of additional funds to provide support for energy bill-payers.
The Chancellor also today confirmed plans to go ahead with existing proposals to expand eligibility for the Warm Home Discount by almost a third to three million vulnerable households will now benefit. The planned £10 uplift to £150 from October has also been confirmed.
3 February: Ofgem Confirms Huge Rise In Price Cap
The energy price cap, which limits how much firms can charge for each unit of gas and electricity supplied to domestic customers, as well any standing charge, is to rise by 54% on 1 April 2022.
This means the level of the cap for a household with average consumption on a dual-fuel standard variable rate tariff, paying by direct debit, will rise by £693 from £1,277 to just under £1,971. Actual bills will always be determined by the amount of energy used.
Prepayment meter customers will see an increase of £708 from £1,309 to £2,017, again for typical usage.
The cap applies to around 22 million households in England, Scotland and Wales. Northern Ireland does not have a price cap.
The increase is due to sustained high wholesale gas prices in the six months to the end of January – the period used by Ofgem, the market regulator which sets the cap, to determine what the new level should be. Once in effect from April, the cap is due to remain at the same point until the end of September, when it will be adjusted again.
However, Ofgem is to unveil measures later this week that may allow it to make adjustments more often than six-monthly. It said: “Further measures include enabling Ofgem to update the price cap more frequently than once every six months in exceptional circumstances to ensure that it still reflects the true cost of supplying energy.”
Such has been the cost of wholesale gas that around 30 energy suppliers have gone out of business in recent months, with their customers transferred to larger rivals. The effect of the cap has been to prevent suppliers from charging enough to cover the cost of buying gas in bulk, leading to them operating at a loss.
Gas prices have risen on international markets because of high demand post Covid lockdown. Alternative sources of energy, such as wind, solar and nuclear, have not been able to meet requirements.
The government is to announce measures later today to help beleaguered households cope with the massive escalation of costs. Rishi Sunak MP, Chancellor of the Exchequer, is to hold a press conference this evening, with expectations high that he will provide details of a fund from which energy companies can borrow money in order to reduce the amount by which bills will increase.
But as this would be a loan, the belief is that bills would need to remain artificially high, even after the gas supply crunch comes to an end, to fund repayments.
Ofgem Cap Update Expected Tomorrow As Govt Mulls Support Measures
Ofgem, the energy market regulator, is expected to announce the next level of its price cap tomorrow (Thursday 3 February). The cap, which dictates how much energy firms can charge per unit of gas and electricity they supply to domestic customers, will be adjusted on 1 April and will remain at the new level until 30 September.
The announcement was scheduled for next Monday but has reportedly been brought forward because the government is keen to unveil a package of measures to help hard-pressed energy consumers.
The cap is widely expected to increase from its current level of £1,277 a year (for typical households on a dual fuel gas and electricity tariff paying in arrears) to around £2,000 a year.
The cap for households with pre-payment meters – currently standing at £1,309 a year for average consumption users – is also expected to rise steeply.
At present, there are no cheaper alternatives to the cap, meaning customers who are not on fixed rate deals already have no option but to pay it. If the cap rises as expected, there may be scope for suppliers to undercut it, but such as been the increase in wholesale energy costs in the past year that this may prove a struggle.
The increase in the cap will stretch many household budgets to breaking point and beyond. In response, the government is expected to announce a package of measures to support consumers, possibly as soon as Thursday afternoon.
We will provide details as they arrive.
24 January: British Gas Takes On Together Customers
British Gas is taking on the customers of Together Energy Retail after the Bristol-based supplier closed its doors last week (see story below).
The move was announced by Ofgem, the energy market retailer, which runs a safety net operation in the case of corporate failures. Together Energy, which also uses the brand Bristol Energy, has 176,000 domestic customers and 1 non-domestic customer.
Under the provision of the safety net, money that current and former domestic customers of the suppliers have paid into their accounts will be protected, where they are in credit. Domestic customers will also be moved to a British Gas tariff that is governed by Ofgem’s energy price cap.
The will be no interruption to energy supplies. Customers of Together Energy will be contacted over the coming days about the changes. If customers wish to switch supplier, they can shop around but are advised to wait until the transfer has been completed.
Customers will not be charged exit fees if they decide to switch to another supplier, although they are extremely unlikely to find a tariff priced below the level of the price cap, which stands at £1,277 a year for a typical household on a dual fuel deal.
Customers seeking more information can contact British Gas.
18 January: Together Energy Retail Is First Company Failure of 2022
The UK’s beleaguered energy sector was delivered another blow today with the announcement that Together Energy Retail has gone out of business.
The firm – which also runs Bristol Energy – supplies around 176,000 domestic customers, and one non-domestic customer.
Under the safety net operated by Ofgem, the market regulator, customers’ energy supply will continue and funds that domestic customers have paid into their accounts will be protected, where they are in credit.
Domestic customers will be switched to a new supplier, with their new tariff protected by the energy price cap.
Customers will be contacted by their new supplier over the coming weeks. This firm will be chosen by Ofgem after a tendering process.
Ofgem’s advice to customers is to:
- wait until a new supplier has been appointed and you have been contacted by them in the following weeks before looking to switch to another energy supplier (at the moment there are no tariffs priced below those operating at the level of the energy price cap)
- take a meter reading ready for when your new supplier contacts you to make the process of transferring over to the new supplier as smooth as possible.
Together is one of almost 30 suppliers that have gone bust in the past 12 months due to an unprecedented increase in global gas prices.
The price cap means that suppliers are unable to pass on the full cost of paying wholesale suppliers for energy, meaning they are effectively selling to UK customers at a loss. This is the reason for such a volume of corporate failures – and with no sign of any meaningful reduction in wholesale prices in the near future, there may be more to come.
The price cap currently stands at £1,277 per annum for an average consumption household paying for a dual fuel tariff by direct debit. The new level of the cap will be announced on 7 February, to take effect on 1 April.
Many analysts fear it could reach £1,900 or even £2,000, pushing many household budgets to breaking point.
Ofgem, the government and energy firms are exploring ways in which to reduce the impact of any price hike on customers.
15 December: Energy Price Cap Under Review As Ofgem Gets Tough
The energy price cap that has shielded many UK households from the full impact of huge rises in natural gas prices this year could be about to change as part of a shake up by the industry regulator, Ofgem
Rules are being brought in to make sure the energy market doesn’t collapse, following a year in which 28 energy suppliers went bust. Part of the changes involve a review of the price cap.
It’s been an unprecedented year for energy company failures. Record natural gas prices – up by more than 250% since January – have put pressure on smaller suppliers with limited reserves, forcing many to fold.
Suppliers said they were hampered by the Ofgem energy price cap, which protected customers from spiralling prices but prevented firms from passing on their increased costs to bill payers.
Ofgem is seeking views on whether the price cap should be changed to better handle volatility in the market.
The price cap limits the rates a supplier can charge for their default variable rate tariffs. These include the standing charge and price for each kilowatt hour (kWh) of electricity and gas. Ofgem sets a new cap for each summer and winter, reflecting global wholesale prices.
The new level of the cap is announced in August and February, and the change takes effect in April and October. The last change was a 12% increase on 1 October, taking it to £1,277 a year for a household with average consumption levels.
The next update in April will be based on an agreed formula that takes account of wholesale energy prices between August 2021 and January 2022 – which means it’s likely to go up. Some commentators have said that a price rise of £300-£400 is on the cards.
The cap is due to end by the end of 2023, but may be changed or withdrawn sooner in light of 2021’s energy market troubles.
Ofgem’s announcement that it will review the energy price cap coincides with a sharp increase in inflation.
Consumer Price Index inflation rose from 4.2% to 5.1% in November, according to Office for National Statistics (ONS) data. Independent think-tank Resolution Foundation said the figures were likely to put a squeeze on living standards and predicted inflationary pressures would continue into early 2022.
New Rules For Suppliers
From January 2022, suppliers will have to undergo financial stress testing to make sure they can withstand market pressures that could sink them if their finances aren’t robust enough.
Ofgem, which is bringing in the new rules, will step in where weaknesses are identified and work with suppliers to improve their situations.
As well as the financial stress testing, supplier management boards will have to carry out self-assessments of their control frameworks and report back to Ofgem. The watchdog will also strengthen its existing ‘fit and proper’ energy licence criteria.
Other measures confirmed by the regulator include exploring how best to tighten rules around protecting credit balances, consulting on new financial licence requirements, and considering making suppliers pause their expansion plans beyond certain milestones (such as 50,000 and 200,000 customers) until Ofgem is satisfied they’re stable enough.
Many of this year’s corporate failures had fewer than 200,000 customers.
Ofgem’s Jonathan Brearly said: “Today, I’m setting out clear action so that we have robust stress testing for suppliers so they can’t pass inappropriate risk to consumers. I want to see more checks on staff in significant roles, and better use of data to help us regulate.
He added: “Our priority has been, and will always be, to act in the best interests of energy consumers. The months ahead will be difficult for many, and we are working with the government and energy companies to mitigate the impact as much as we can, particularly for the most vulnerable households.”
3 December: Zog Customers Move To EDF, Scottish Power Takes On Entice, Orbit Customers
Zog Energy, which has 11,700 domestic customers, has ceased trading. Under regulator Ofgem’s safety net, which comes into play when a business fails, Zog’s customers’ energy supply will continue and funds that domestic customers have paid into their accounts will be protected, where they are in credit.
Domestic customers will also be protected by the energy price cap when they are switched to a new supplier by Ofgem, as part of its Supplier of Last Resort protocol. Customers will be contacted by their new supplier, which will be chosen by Ofgem following a competitive tender process among other supplier
Update: Ofgem announced on 3 December that Zog’s customers will be taken on by EDF.
Ofgem’s advice to affected customers is to wait to be contacted by EDF with details of your the tariff and take a meter reading as soon as possible to smooth the transfer process. Switching to a new supplier is not recommended during the appointment of a new supplier.
Additionally, the current market conditions mean there are no deals available at less than the Ofgem price cap, meaning switching would bring no financial benefit.
Separately, Ofgem has appointed Scottish Power to take on the customers of Entice Energy and Orbit Energy, which closed for business last week (see story below). The 70,000 customers involved will be contacted by Scottish Power over the coming days and weeks. There will be no interruption to supply and the tariff they are moved to will be controlled by Ofgem’s price cap.
In a statement on its website, Zog blamed its decision on the failure of its wholesale gas supplier, Contract Natural Gas (see story below from 3 November). The notice says: “Zog Energy was founded to provide its customers with the best possible value energy.
“Throughout our time we have invested in the best value technology to keep costs down and purchased our gas in advance from Contract Natural Gas Ltd to keep the promise we made to customers to supply simple cheap domestic gas.
“However, Contract Natural Gas Ltd has withdrawn from the wholesale market and ceased to trade. Unfortunately, the administrators of Contract Natural Gas Ltd are unwilling to transfer the gas hedges we had previously agreed. This has put us in an untenable position of having to purchase gas at the current market rate and we have no choice but to cease to trade.
“Your energy supply will now be transferred to a new supplier. You need not worry; your supply is secure and funds that you’ve paid into your accounts will be protected if you are in credit.”
25 November: Taxpayer On Hook For £1.7bn To Keep Bulb Operational, Entice And Orbit Cease To Trade
Failed energy firm Bulb will be funded by the taxpayer up to a reported £1.7 billion after it was placed into the Special Administration Regime (SAR) by the government and the market regulator, Ofgem.
The SAR process is designed to ensure there is no change to Bulb’s customers’ supply and to protect any credit balances they may have – customers have been told they need to take no action at this time. Anyone considering switching away from Bulb is likely to find that there are no competitive tariffs available and that their best option is to stay put.
The administrator, Teneo, will run the firm using funds provided by the taxpayer until its future is settled, which could mean selling it whole or in part, or closing it down and moving its customers to other firms.
The government says it will work to recoup its outlay, “ensuring that we get the best outcome for Bulb’s customers and the British taxpayer.”
Bulb is the first firm to go into the SA regime, which was created in 2011 in anticipation of a large supplier going to the wall. With around 1.7 million customers, it is over three times the size of Avro, the largest firm to cease trading in recent months.
The 20-plus other energy firms that have gone bust since the summer have been through Ofgem’s Supplier of Last Resort (SoLR) process, whereby a competitive bidding process is held to find another supplier that is willing to take on the failed company’s customers.
But wholesale prices are so high relative to Ofgem’s price cap, it is thought no supplier would be willing to take on Bulb’s business – it would effectively mean their operating at a loss.
Update: Entice Energy, which comprises both Entice Energy Supply Limited and Simply Your Energy Limited, and Orbit Energy have announced today (25 November) that they are ceasing to trade. As with other supplier failures (see stories below), customers’ supplies will be guaranteed by Ofgem, as will in-credit balances they have built up. Customers are advised not to switch, but to take a meter reading and wait to hear from their new supplier, as appointed by Ofgem.
Business as usual
In a statement to customers on its website, Bulb said: “We’ll continue to operate as usual so you don’t need to take any action. Your tariffs are not changing, and the price cap applies to all consumer energy tariffs. If you pay for your energy by top-up, your top-ups will continue to work as normal. If you’re in the process of switching to or from Bulb, your switch will continue.
“We’ll continue to supply 100% renewable electricity and 100% carbon neutral gas, and to protect credit balances for our domestic and business members throughout this process.”
Fuel prices on international wholesale markets have peaked recently, with fears of a cold winter ahead causing a surge in demand. This will heap further pressure on energy suppliers who cannot charge more for standard variable rate tariffs than the Ofgem price cap, which stands at £1,277 a year for a typical household.
Fixed rate tariffs, which are not subject to the cap, are on sale for several hundred pounds more than the variable tariff cap.
The cap is reviewed and adjusted twice-yearly. It is likely the next review, in February, will see a sharp increase to reflect higher wholesale prices. Some commentators suggest it could rise to £1,600 or more when the change is implemented in April.
Ofgem has announced a wide-ranging consultation on the way the cap operates (see story below).
22 November: Bulb In Special Admin As Market Woes Intensify
Green energy supplier Bulb has announced it has taken “the difficult decision to support Bulb being placed into special administration”. The is the first time the arrangement – designed by the government and the regulator, Ofgem, to come into force following the failure of a large energy supplier – has been used.
The move means Bulb is the largest company to hit the rocks since the energy market was plunged into crisis by soaring wholesale prices earlier this year. Bulb has around 1.7 million customers in the UK, making it the seventh largest supplier. Some 24 smaller suppliers have already ceased trading in 2021.
Bulb says special administration “is designed to protect Bulb members, ensuring there’s no change to your supply and your credit balance is protected.”
The process means Bulb will continue to operate as normal, and there is no need for customers to take any action. The special administrator will be announced shortly. The arrangement will remain in force – paid for by taxpayers – until Bulb is able to restore it own financial health, the company is sold, or it is wound up and its customers are moved to another supplier.
Bulb offers variable rate deals that are controlled by the energy price cap, which is currently at £1,277 a year for households with typical usage. At present, there are no tariffs available under the price cap elsewhere on the market, meaning it is almost certainly not worth switching away from Bulb given the protections afforded by the special administration regime.
Bulb’s size means it is unrealistic for another company to take on its customer base, as has been the case with the 20-plus companies that have gone bust in recent months under Ofgem’s ‘supplier of last resort’ regime. Companies taking on customers in such scenarios are not allowed to charge more than the Ofgem price cap (£1,277 a year for average households), and many say the level of wholesale prices would force them to operate at a loss as a result.
A notice on Bulb’s website says: “Special administration is designed to allow Bulb to continue to operate as usual so you don’t need to take any action. Your tariffs are not changing, and the price cap applies to all consumer energy tariffs.
“If you pay for your energy by top-up, your top-ups will continue to work as normal. If you’re in the process of switching to or from Bulb, your switch will continue. Smart meter installations and other metering work will continue.”
An Ofgem spokesperson said: “Customers of Bulb do not need to worry – Bulb will continue to operate as normal. Ofgem is working very closely with Government. This includes plans for Ofgem to apply to Court to appoint an administrator who will run the company. Customers will see no disruption to their supply and their account and tariff will continue as normal. Bulb staff will still be available to answer calls and queries.”
Bulb is also notable for offering 100% renewable electricity and 100% carbon neutral gas.
19 November: Ofgem Consults On Price Cap
Energy market regulator, Ofgem, has today published a series of consultations on the future of its price cap. The aim is “to ensure that the price cap reflects the costs, risks and uncertainties facing energy suppliers.”
This could mean the cap being adjusted more frequently than every six months (in April and October), which is the cycle at present.
Many suppliers claim the level of the cap – £1,277 per annum for standard variable rate tariff customers with average consumption and £1,309 per annum for prepayment tariff customers with average consumption – is set too low relative to wholesale market prices for electricity and, particularly, gas.
Companies argue they are unable to pass on the true cost of buying energy, resulting in them operating at a loss. Over 20 suppliers have ceased trading in recent months.
However, the cap has already risen substantially this year – by 9% in April and by 12% in October – placing huge pressure on household budgets. The Office for National Statistics and the Bank of England have stated that energy prices are a key contributing factor to inflation hitting its highest level for 10 years last month, at 4.2%.
The cap will be adjusted again in April 2022, with the change announced in February. There are fears that the rise could add a further £300-£400 to annual bills.
One of the consultations issued today will look at whether recent market volatility “has caused the level of the price cap to materially depart from the efficient cost level allowed for in the price cap”.
In other words, Ofgem wants feedback on whether the current level of the cap is sufficient to allow suppliers to cover their expenses and make an agreed level of profits.
A second consultation will analyse the process for updating the methodology that determines the level of the cap. Ofgem is proposing to modify its licence to allow it to amend the cap outside the current April-October six-month cycle in exceptional circumstances.
Further details of these and other consultations on technical aspects of the price cap can be found here.
Stakeholder views are invited on any aspect of these documents by 17 December 2021, with findings and decisions to be published in the New Year.
16 November: Neon Reef, Social Energy Cease Trading
Update 22 November: British Gas has been appointed the ‘supplier of last resort’ for customers of Neon Reef and Social Supply, which ceased trading earlier this month (see following story).
Two more energy companies have ceased trading, bringing the total of failed suppliers in 2021 alone to 24. The unprecedented market upheaval is attributed to sustained high prices on wholesale markets, which suppliers are largely unable to pass on the their customers because of the regulatory price cap (see stories below).
The two latest casualties are Neon Reef and Social Energy Supply. Last week Ofgem listed Social Energy Supply among the companies that were in default on their required payments to the energy market Feed-in-Tariff (see below).
Neon Reef supplies around 30,000 domestic electricity customers, and Social Energy Supply Ltd supplies around 5,500 domestic customers.
Under the safety net arrangements maintained by the regulator, Ofgem, both firms’ customers will see no interruption to their supply, and funds paid into their accounts will be protected, where they are in credit. As is always the case when a company goes out of business, Ofgem will appoint a new supplier for each firm’s domestic customers, who will be protected by the energy price cap when switched to the new firm.
This means their new tariff will cost no more than £1,277 per annum if they are a typical household with average consumption (£1,309 for prepayment customers). The cap regulates the amount suppliers can charge per unit of gas and electricity and for any standing charge, so actual bills are always determined by the amount of energy used.
As some customers of the failed firms may have been on cheaper deals, they may see their bills rise when they move to their new supplier.
Ofgem will appoint new suppliers in the coming days after a competitive bidding process. The newly-appointed firms will then contact customers with details of the new arrangements. Customers are advised not to switch until the process is complete, but they are recommended to take a meter reading as soon as possible to smooth the transfer process from the old firm to the new one.
12 November: Ofgem Calls In £575,000 Of Supplier Debts, Threatens To Revoke Licences
Ofgem, the energy market regulator, has ordered five suppliers to pay more than half a million pounds they owe or face losing their licences.
The suppliers owe Ofgem a collective £575,000 worth of payments into a government scheme that compensates owners of small-scale renewable energy generators.
All energy suppliers are obliged to pay into the Feed-in-Tariff scheme as part of their licence conditions, but five suppliers missed the November 10 deadline for payments this week.
The lion’s share of the missing payments are owed by Orbit Energy (£451,296), while the rest of the debt is owed by Delta Gas and Power (£46,701), Social Energy Supply (£28,735), Simply Your Energy/Entice (£28,353) and Whoop Energy (£19,013).
Ofgem has told the suppliers to pay what they owe immediately or face enforcement action that could include financial penalties or stripping them of their licences.
The demand comes at a challenging time for smaller energy firms struggling to keep up with rising wholesale prices – particularly for natural gas, which has risen in price by 250% since the beginning of the year.
Twenty suppliers have folded since the summer, including six this month, affecting more than two million domestic energy customers.
Affected customers are protected by Ofgem’s safety net that guarantees their supply, moves them onto another supplier’s books and preserves money they have paid into their accounts, where they are in credit.
Customers of firms that cease trading are advised not to switch before the transfer to the new Ofgem-appointed supplier is completed.
8 November: Ofgem Appoints Suppliers For Clutch Of Recently Bust Firms
In line with its market ‘safety net’ protocols, energy regulator Ofgem has appointed suppliers to take over the energy supply of customers of companies which have recently ceased trading due to adverse market conditions, primarily soaring wholesale price for natural gas.
Ofgem – which regulates both domestic and commercial suppliers – says the changes will affect 70,600 domestic and non-domestic customers.
The changes announced today include:
- British Gas will take on customers of Bluegreen Energy, which supplies 5,900 domestic customers, along with a small number of non-domestic customers (more information here), and Zebra Power, which supplies 14,800 domestic customers. More information here
- Utilita is taking on customers of Omni Energy, which supplies 6,000 domestic pre-payment customers. Click here for more information
- Yü Energy will take on customers of Ampower, which supplies 600 domestic and 2,000 non-domestic customers. Customers can visit here or more information
- Pozitive Energy is taking on customers of CNG Energy and CNG Electricity, which supply 41,000 non-domestic customers. Customers can go here for more information
- SmartestEnergy Business Limited is taking on customers of MA Energy, which supplies 300 non-domestic customers. Customers can visit this site for more information.
Ofgem runs a competitive process to get the best deal for consumers. The process ensures that there is no interruption to supply and that energy supplies will continue as normal after customers are switched over to their new suppliers.
Funds paid by current and former domestic customers into their accounts will be protected by Ofgem, where customers are in credit. Domestic customers will also be protected by the energy price cap with their new supplier, which means they will pay no more than the current cap (£1,277 for average use households) on their new tariff.
Customers whose suppliers have ceased trading will be contacted over the coming days about the changes. If customers wish to switch supplier, they can shop around but Ofgem is advising them to wait until the transfer has been completed.
They are recommended to take meter readings as soon as possible, as this will smooth the switch to the new supplier.
If, in due course, customers decide to switch to another supplier, they will not be charged exit fees.
Neil Lawrence, Ofgem’s director of retail, said: “We understand this news may be unsettling for customers, but they don’t need to worry. Their energy supply will continue as normal, and domestic customer credit balances, as well as some non-domestic credit balances, will be honoured.
“Your energy supply will not be interrupted, and your newly appointed supplier will be in contact over the coming days with further information. If customers wish to switch suppliers they can shop around if they wish, but they are advised to wait until the transfer has been completed.”
Key points:
- Customers are being supplied by their new suppliers as of 7 November
- Non-domestic credit balances for customers of Bluegreen, MA Energy, and CNG Energy and CNG electricity will be honoured by British Gas, SmartestEnergy and Pozitive Energy
- Part of the credit balances of non-domestic customers of Ampower will be honoured by Yü Energy
- Accounts for all affected customers will be fully set up in due course and the newly appointed suppliers will be in touch with customers in the coming days
- Any questions customers have should be directed to their newly appointed suppliers. Contact details are available via their respective websites
- Funds that current and former domestic customers have paid into their accounts will be protected, where they are in credit.
- Current and former customers who owe money, or are in debit to their failed supplier, should wait to hear from their new supplier or their outgoing suppliers’ administrators.
- Appointed suppliers will be in touch with customers with direct debits to explain how to set up their account.
- Customers can find support and advice on the Ofgem website, Facebook, and twitter feed, @ofgem. Alternatively, if they need extra help, in England and Wales they can contact Citizens Advice on 0808 223 1133 or email them via webform, in Scotland they can contact Advice Direct Scotland on 0808 196 8660 or use their online webchat.
3 November: Business Energy Supplier CNG Stops Trading
CNG Energy Limited, a business energy supplier with around 41,000 non-domestic customers, has gone out of business. A message on its website reads: “After 27 years we are saddened to say CNG Energy Limited is ceasing to trade.”
The news comes after the demise earlier this week of five energy firms with domestic customers (see story below).
As is always the case when energy firms go bust, the regulator, Ofgem, will guarantee continuation of supply to CNG’s customers. However, the part of Ofgem’s safety net that guarantees that any funds which domestic customers have paid into their accounts will be protected, where they are in credit, does not apply in the case of CNG’s commercial clients.
Similarly, whereas domestic customers of a failed supplier are protected by Ofgem’s energy price cap when switched to a new supplier, business customers do not have this certainty.
The status of CNG customers in terms of credit balances and tariff rates will be determined by their new supplier, which will be appointed by Ofgem in the coming days.
CNG customers are being urged not to switch before being moved to their new supplier. But they should take meter readings to ease the transfer process when it happens.
2 November: Further Four Energy Companies Go Bust
In a dark day for the UK energy market, four more energy providers have ceased trading, joining Bluegreen Energy, whose demise was announced yesterday.
The latest victims of the crisis, caused by a steep rise in wholesale energy prices of the past 12 months, are:
- Zebra Power Limited, which supplies around 14,800 domestic customers
- Omni Energy, which supplies around 6,000 domestic pre-payment customers
- Ampoweruk Ltd, which supplies around 600 domestic customers, and around 2,000 non-domestic customers
- MA Energy, which supplies around 300 non-domestic customers.
Under Ofgem’s safety net, customers’ energy supply will continue and funds that domestic customers have paid into their accounts will be protected, where they are in credit. Domestic customers will also be protected by the energy price cap when being switched to a new supplier.
Customers of these suppliers will be contacted by their new supplier, which will be chosen by Ofgem. See story below for further information on the process of moving to a new supplier.
1 November: Bluegreen Energy Becomes Latest Market Casualty
Ofgem, the energy market regulator, has announced that Bluegreen Energy Services Limited is ceasing to trade.
Bluegreen Energy supplies around 5,900 domestic customers and a small number of non-domestic customers. In a statement it said: “Due to the energy crisis in the UK, we find ourselves in an unsustainable situation and regrettably, Bluegreen Energy Services Limited is forced to make the difficult decision to cease trading.”
Ofgem’s safety net means customers’ energy supply will continue, and funds that domestic customers have paid into their accounts will be protected, where they are in credit.
Domestic customers will transferred en bloc to a new supplier, chosen by Ofgem, in the next few days. The new tariff they are moved to will be priced no higher than the regulator’s price cap, which limits how much suppliers can charge for each unit of gas and electricity used.
The current cap works out at £1,277 a year for a typical household with average consumption. The way the cap is set is under close scrutiny at present, with energy suppliers saying it obliges them to operate at a loss because wholesale energy prices are so high. But any increase in the cap when it is next reviewed early in 2022 will heap pressure on already-stretched household budgets.
Last week Ofgem announced a consultation process on the structure and operation of the cap.
Ofgem’s advice to Bluegreen Energy customers is not to switch supplier for the moment. It says they should:
- wait until a new supplier has been appointed and you have been contacted by them in the following weeks before looking to switch to another energy supplier
- take a meter reading ready for when your new supplier contacts you as this will make the process of transferring customers over to the chosen supplier, and honouring any funds that domestic customers have paid into their accounts, where they are in credit, as smooth as possible.
21 October: Shell Energy Takes On GOTO, Pure Planet, Daligas and Colorado Customers
Ofgem, the energy market regulator, has appointed Shell Energy Retail to take on the customers of failed energy firms GOTO, Pure Planet, Daligas and Colorado Energy.
The move affects a combined total of approximately 275,000 domestic customers and 600 non-domestic customers.
As with other customer transfers (see stories below), any credit balances that domestic customers have paid into their accounts will be protected, and there will be no interruption to supply.
Domestic customers will be moved onto a Shell Energy tariff that is limited by Ofgem’s energy price cap, which currently stands at £1,277 a year for households using an average amount of energy. Once the transfer is completed, customers are free to switch without penalty. However, because of current market conditions arising from the high price of wholesale natural gas, it is unlikely that deals will be available below the level of the cap until early 2022.
Customers of all three suppliers will be contacted over the coming days about the changes. Ofgem says they should wait for Shell Energy to get in touch and should not switch in the meantime.
18 October: GOTO Energy Latest Casualty In Energy Price Crisis
GOTO Energy Limited is ceasing to trade with immediate effect. The firm supplies gas and electricity to 22,000 domestic customers. It is the thirteenth supplier to go bust since September as the UK market reels from the effects of rocketing wholesale energy prices.
Under the safety net provisions overseen by the energy regulator, Ofgem, customers’ energy supply will continue without interruption. Funds that domestic customers have paid into their accounts will be protected, where they are in credit.
Domestic customers will be switched as a block to a new supplier by Ofgem. The new tariff they are given will be protected by Ofgem’s energy price cap, which stands at £1,277 a year for households with typical consumption. The size of bills will always be determined by the amount of energy consumed.
Tariffs operating within the cap are currently the cheapest on the market thanks to the unprecedented price of wholesale energy on international markets. However, customers are free to switch away from the new supplier, without penalty, if they choose to do so.
Ofgem’s advice to affected customers in the meantime is to:
- wait until a new supplier has been appointed and you have been contacted by them in the following weeks before looking to switch to another energy supplier
- take a meter reading ready for when your new supplier contacts you. This will make the process of transferring customers over to the chosen supplier, and honouring any funds that domestic customers have paid into their accounts, where they are in credit, as smooth as possible.
14 October: Daligas Closure Brings Number Of Recent Failed Firms To 12
Daligas Limited has announced it is ceasing to trade. The announcement comes the day after Pure Planet and Colorado Energy closed their doors, leaving 250,000 domestic customers to rely on the regulator Ofgem’s safety net (see story below).
The failure of Daligas means 12 energy suppliers have collapsed since the beginning of September. They have all been hit by the high cost of energy – particularly natural gas – on wholesale markets.
With 9,000 domestic and commercial customers, Daligas Limited, a gas-only supply firm, is one of the smaller businesses in the sector, but the announcement today will be seen as further evidence of the turbulence affecting the UK energy market as a whole.
In order to run cheap tariffs when wholesale prices are rising rapidly, companies need to have bought substantial stocks at affordable prices – a process known as hedging. Many smaller firms with modest capital resources have not been able to secure long-term supplies, and have found current spot prices out of their reach.
Additionally, the Ofgem price cap on how much firms can charge those on their variable rate ‘default’ tariffs means firms cannot pass on the full cost of wholesale energy bought today to their customers.
As with previous corporate failures, Daligas’ domestic customers’ supply will be guaranteed by Ofgem, along with any credit balances, until a new supplier is found to take on their business. An announcement regarding the new supplier may be made in the coming days, although reports suggest the remaining viable suppliers are growing increasingly wary of taking on new customers en bloc given that they would have to service them at a loss.
If Ofgem is unable to secure a ‘supplier of last resort’ to absorb the customers of a failed company, it has the power to appoint a special administrator to run the failed business until such time as a permanent replacement can be found.
The costs associated with transferring customers to a new supplier are said to run into hundreds of pounds per account – a cost that would eventually filter through to all energy bills via charges levied on the surviving suppliers.
The regulator says customers of all failed firms, including Daligas, should sit tight and not switch but instead wait until they hear from their new supplier. They should, however, take a meter reading as soon as possible to provide to the new supplier in due course.
13 Oct: Pure Planet, Colorado Energy Latest Firms To Cease Trading
Pure Planet Limited and Colorado Energy Limited have announced they are ceasing to trade. Pure Planet supplies gas and electricity to around 235,000 domestic customers and Colorado Energy supplies gas and electricity to around 15,000 domestic customers.
They bring to 11 the total of energy firms that have gone bust since the beginning of September as a result of the pressures arising from soaring wholesale prices (see stories below).
The market regulator, Ofgem, operates a safety net to ensure customers’ energy supply will continue and any credit in customers’ accounts will be protected. Domestic customers with the firms will be moved en masse to new suppliers by Ofgem, where they will be protected by the energy price cap, which currently stands at £1,277 a year for typical consumption dual fuel households on standard variable rate default tariffs.
Customers will be contacted by their new supplier, which will be chosen by Ofgem over the coming days.
Ofgem’s advice to those affected is to:
- take meter readings as soon as possible ready for when your new supplier contacts you (this will make the process of transferring customers over to the chosen supplier, and honouring any funds that domestic customers have paid into their accounts, where they are in credit, as smooth as possible)
- wait until a new supplier has been appointed and you have been contacted by them in the following weeks before looking to switch to another energy supplier.
Ofgem says it is working closely with government and industry to make sure customers continue to be protected this winter. Neil Lawrence, Director of Retail at Ofgem, said: “Our number one priority is to protect customers. We know this is a worrying time for many people and news of a supplier going out of business can be unsettling.
“I want to reassure affected customers that they do not need to worry. Under our safety net we’ll make sure your energy supplies continue. If you have credit on your account the funds you have paid in are protected and you will not lose the money that is owed to you.
“Ofgem will choose a new supplier for you and while we are doing this our advice is to wait until we appoint a new supplier and do not switch in the meantime. You can rely on your energy supply as normal. We will update you when we have chosen a new supplier, who will then get in touch about your tariff.”
Customers who have questions should visit the FAQs on the Ofgem website.
4 Oct: E.ON Next Takes On Enstroga, Igloo, Symbio Customers
Ofgem, the energy market regulator, has appointed major supplier E.ON Next to take on the customers of Enstroga, Igloo Energy and Symbio Energy, which announced last week that they were ceasing to trade (see below). The move swells E.ON Next’s customer roll by 233,000 households.
The switch, announced today, is effective from yesterday. Ofgem guarantees that there will be no interruption to supply, as is always the case when customers are transferred to a new supplier. Any account credit balances are also protected. The regulator urges customers not to switch until the transfer process is complete.
Transferring customers will be protected by the energy price cap, which rose to £1,277 per annum on Friday for standard variable rate ‘default’ tariff customers using a typical amount of energy. Many ENSTROGA, Igloo Energy and Symbio Energy customers will therefore see an increase in their bills if they have previously have been on a cheaper fixed rate deal.
However, the current energy market crisis (see below) means these cheaper deals have been withdrawn from sale, leaving default tariffs governed by the cap as the lowest-priced available in most cases.
That said, transferred customers are free to shop around and switch once their move to E.ON Next is finalised. Customers will not be charged exit fees if they decide to switch to another supplier at that time.
Anyone whose switch was already in progress when their original supplier went out of business will have their switch honoured.
Further information can be found on E.ON Next’s website:
29 Sept: Three More Energy Firms Cease To Trade
Ofgem, the energy regulator, has announced that three more energy suppliers are ceasing to trade. This means nine firms have closed their doors in recent weeks in response to soaring wholesale energy prices, which meant they were effectively operating at a loss (see stories below).
Today’s announcement lists Igloo Energy (179,000 domestic customers) Symbio Energy (48,000) and ENSTROGA (6,000) as the latest failures. Ofgem says that together they represent less than 1% of domestic customers in the market. In total, approaching two million households have been affected by recent collapses.
Under Ofgem’s safety net, customers of the failed firms will continue to receive gas and electricity without interruption and any credit balance in customer accounts will be protected and honoured when a new supplier is appointed for each company.
Domestic customers of each firm will be moved en bloc to their respective new supplier’s deemed tariff. This will be subject to Ofgem’s price cap, which stands at £1,277 (as of 1 October) for households with typical usage.
The new suppliers will contact customers with more information in due course. Ofgem normally appoints ‘suppliers of last resort’ within a matter of days. No action is required by customers in the meantime beyond taking a meter reading as soon as possible. There is no need to switch suppliers. This will become an option once the transfer to the new supplier is finalised.
Neil Lawrence at Ofgem said: “Our number one priority is to protect customers. We know this is a worrying time for many people and news of a supplier going out of business can be unsettling.
“I want to reassure customers of ENSTROGA, Igloo Energy and Symbio Energy that they do not need to worry. Under our safety net we’ll make sure your energy supplies continue. If you have credit on your ENSTROGA, Igloo Energy or Symbio Energy account the funds you have paid in are protected and you will not lose the money that is owed to you.
“Ofgem will choose a new supplier for you and while we are doing this our advice is to wait until we appoint a new supplier and do not switch in the meantime. You can rely on your energy supply as normal. We will update you when we have chosen a new supplier, who will then get in touch about your tariff.
“In recent weeks there has been an unprecedented increase in global gas prices which is putting financial pressure on suppliers. Ofgem is working closely with government and industry to make sure customers continue to be protected this winter.”
UPDATE 27 September: Shell Energy Takes On Green Supplier Customers
Customers of failed energy company Green Supplier will now be serviced by Shell Energy, the energy regulator Ofgem has announced. The transfer of 255,000 domestic customers and a small number of non-domestic customers becomes effective immediately, and Shell Energy will contact those concerned over the coming days and weeks.
Ofgem said yesterday that Octopus has taken on customers of Avro Energy, which announced last week that it was ceasing to trade. Other companies to announce their closures in recent weeks include PfP Energy, MoneyPlus Energy, People’s Energy and Utility Point (see stories below).
As also detailed below, Ofgem’s safety net procedures guarantee continuity of supply and safeguard credit balances while the transfer of accounts takes place.
Customers of failed companies will be moved to ‘deemed’ contracts with their new supplier, with prices controlled by the Ofgem price cap.
Green Supplier customers can contact Shell Energy for more information: 0330 094 5804 or at [email protected].
Further company closures are expected as suppliers struggle to meet the rising cost of energy on wholesale markets, with the energy cap limiting how much of this additional cost they can pass on to their customers.
The government and Ofgem have issued statements reassuring consumers that there is no threat to supply in the UK over the winter months.
26 September: Ofgem Appoints Octopus To Take On Avro Customers
Energy market regulator Ofgem has appointed Octopus Energy to take on the 580,000 domestic customers of Avro Energy, which announced that it is ceasing to trade last week. The move takes effect from today (26 September).
Green Supplier Limited also announced last week that it is ceasing to trade. An announcement is expected in the next few days about which company will take on its 255,000 customers under Ofgem’s ‘safety net’ process.
This guarantees that customers of any failed energy company will not see any interruption to supply while their account is transferred to the new company, known as the ‘supplier of last resort’. Any credit balance is also safe-guarded.
Octopus will contact Avro customers over the coming days to provide information on the change-over. Customers will be moved to a ‘deemed’ contract which will have a maximum price per unit of energy in line with the Ofgem price cap.
On 1 October, this moves to £1,277 a year for a household with typical consumption levels, an increase of 12%. With many cheaper fixed deals having been withdrawn from the market, this is likely to represent good value at present, although many Avro customers will inevitably find themselves paying more than previously.
Once the move to Octopus is complete, Avro customers are free to switch to another deal.
Ofgem says there is no need for Avro customers to cancel any direct debits they have with the firm. It says: “You don’t need to cancel your direct debit, but can if you wish to. Octopus Energy will be in touch with you about whether your existing direct debit will remain in place, or whether they will set up a new direct debit.”
More information can be found at www.octopus.energy/avro and on the Ofgem website.
24 September 2021: Govt Issues FAQs To Calm Fears Over Energy Market
The government has taken the unusual step of publishing a Q&A to enable consumers “to find out more about energy prices and energy suppliers.”
At Forbes Advisor, we have addressed these issues on this page and elsewhere, covering important issues such as the default tariff price cap and the safety net which ensures continuity of supply to customers of failed energy suppliers.
But we thought it would be interesting for you to read the government’s own views on such topics, as published today…
I’m worried there’s not enough gas?
You don’t need to be. While global wholesale gas prices are currently high we are confident that the UK’s security of energy supply is secure now and over the winter.
Am I going to be left without power if my supplier goes bust, or do I have to find a new supplier myself?
No you don’t. Even if your supplier stops operating, Ofgem – the independent energy regulator – will automatically switch you onto a new supplier so there will be no interruption to your supply of energy.
It isn’t unusual for energy suppliers to exit the market so there’s a well-rehearsed system in place to protect households and ensure your gas and electricity keeps running.
If I join a new supplier, aren’t my energy bills going to increase?
Customers of failed suppliers who are switched to a new supplier are protected by the Energy Price Cap.
This is a government scheme which protects millions of people from sudden increases in global gas prices and limits the amount an energy supplier can charge those on default or standard variable rates.
Suppliers cannot charge customers of failed suppliers more than the level of the price cap.
Major energy suppliers also purchase much of their wholesale supplies many months in advance, giving protection to them and their customers from short-term price spikes.
We also have numerous other schemes available to support vulnerable and low-income households including the Warm Home Discount, Winter Fuel Payments and Cold Weather Payments.
Is the Energy Price Cap going to massively increase this winter?
The Energy Price Cap is reviewed twice a year based on the latest estimated costs of supplying energy and it was announced in the summer that from 1 October, the cap would rise due to higher wholesale gas prices.
However, the next time the price cap is due to be updated is April 2022 which means customers who it protects needn’t worry about it increasing before then.
Why don’t we store more gas in the UK?
Gas storage capacity has little bearing on the price of gas. Some other countries do store gas to ensure their own security of supply, but the UK benefits from having access to a highly diverse and secure sources of gas from the North Sea and reliable import partners like Norway.
22 September 2021: Ofgem Chases Suppliers For Renewables Payments
The energy market watchdog, Ofgem, has ordered five small suppliers to pay around £765,000 they owe a government renewables scheme. Many energy suppliers’ finances are stretched almost to breaking point by rocketing wholesale energy prices.
Colorado Energy, Igloo, Neon Reef, Whoop Energy and Symbio Energy have failed to pay into the Feed In Tariff (FIT) scheme which provides payments to owners of small-scale renewable energy generators.
FIT is designed to promote the uptake of smaller scale renewable and low-carbon electricity generation. Suppliers are obliged to pay into the scheme as a condition of their supply licences, and so the regulator, which administers the FIT scheme, is demanding they each pay their dues.
The deadline for payments was September 17. Colorado Energy still owes £261,406.12, Igloo owes £316,582.44, Neon Reef £37,350.76, Whoop Energy £3,780.22 and Symbio Energy £146,238.66.
Ofgem says the missed payments will delay onward payments to renewable energy generators. It has warned the five suppliers that if payments aren’t made, it could take enforcement action that could include stripping them of their licences or imposing financial penalties.
Extra pressure
The Ofgem demands will heap extra pressure on the finances of the companies concerned at a time when the fragility of some energy suppliers’ capital resources has been exposed by rising wholesale prices. Six smaller suppliers have collapsed in recent weeks, with Avro Energy and Green Supplier Limited today becoming the fifth and sixth suppliers to fold of late, affecting over 800,000 customers (see story below).
The other four suppliers to stop trading recently (PfP Energy, MoneyPlus Energy, People’s Energy and Utility Point), had around 600,000 customers on their books.
Affected customers’ accounts are being transplanted into one of the UK’s major energy suppliers as part of Ofgem’s ‘safety net’ process that ensures supplies to people’s homes aren’t cut off and credit balances are protected.
Ofgem appointed EDF Energy to take on 220,000 Utility Point customers and British Gas to do the same for People’s Energy customers.
Amid rising fears of further supplier collapses, business secretary Kwasi Kwarteng MP told Parliament last week that it would not subsidise ailing energy firms.
He said: “The government will not be bailing out failed companies. There will be no rewards for failure or mismanagement. The taxpayer should not be expected to prop-up companies who have poor business models and are not resilient to fluctuations in price.”
Kwarteng also said suggestions of a return to 1970s-style blackouts and three-day working weeks were alarmist and unhelpful.
Avro Energy, Green Supplier Ltd Latest Energy Suppliers To Cease Trading
Avro Energy and Green Supplier Limited have ceased to trade, the fifth and sixth energy suppliers to close their doors in little over a week.
Avro Energy supplies gas and electricity to around 580,000 domestic customers while Green Supplier Limited supplies gas and electricity to around 255,000 domestic customers and a small number of non-domestic customers.
Together they account for just under 3% of domestic customers in the market.
Ofgem’s safety net will ensure there is no interruption to the energy supply of customers of the firms, and outstanding credit balances (of domestic customers) will be protected.
Domestic customers will also be protected by the energy price cap when switched to a new supplier as part of the regulator’s process in such situations.
Ofgem’s advice to Avro Energy and Green Supplier Limited customers is to:
- Wait until a new supplier has been appointed and you have been contacted by them in the following weeks before looking to switch to another energy supplier.
- Take a meter reading ready for when your new supplier contacts you (if you can, take a photograph of your meter, or at least jot down the numbers along with today’s date).
This will make the process of transferring customers over to the chosen supplier, and paying back any outstanding credit balances, as smooth as possible.
Govt Acts On CO2 Shortage As Energy Crisis Intensifies
The taxpayer is to fund the operations of a US-owned fertiliser producer that has mothballed two UK plants because of soaring energy prices.
The move comes as the government grapples with the deepening energy crisis which has pushed a number of suppliers into bankruptcy and threatened millions of consumers and businesses with higher energy bills. But it has ruled out state backing for energy suppliers facing insolvency and closure.
Four energy companies have ceased trading in recent days, with more expected to follow. Customers of the failed suppliers are automatically transferred to a new supplier, without loss of supply and with credit balances protected, thanks to a ‘safety net’ operated by energy market regulator, Ofgem.
The government’s three-week deal with CF Fertilisers, announced by Kwasi Kwarteng MP, business secretary, will secure supplies of CO2, which is a by-product of its manufacturing process.
CF Fertilisers produces around 60% of the UK’s CO2, which is used in the slaughter of animals such as poultry and pigs, in food packaging and in the production of carbonated drinks, and has many applications across industry, including in the health and nuclear sectors.
Under the terms of the deal, the government will provide “limited financial support” for CF Fertilisers’ operating costs at its Teesside plant for three weeks “while the CO2 market adapts to global gas prices”.
“Sufficient capacity”
Mr Kwarteng had earlier made an address to Parliament in which he said: “We have sufficient capacity and more than sufficient capacity to meet demand, and we do not expect supply emergencies to occur this winter.
“There is absolutely no question of the lights going out, or people being unable to heat their homes. There’ll be no three-day working weeks, or a throw-back to the 1970s. Such thinking is alarmist, unhelpful and completely misguided.”
He stressed, however, that the government will not pump money into energy suppliers to keep them afloat: “The government will not be bailing out failed companies. There will be no rewards for failure or mismanagement. The taxpayer should not be expected to prop-up companies who have poor business models and are not resilient to fluctuations in price.”
As well as stressing the merits of the Ofgem safety net, Mr Kwarteng said the regulator’s energy price cap “isn’t going anywhere” and would remain in place to protect customers from “price spikes”.
The cap applies to default standard variable rate and prepayment tariffs and benefits around 15 million households. Such tariffs have historically been among the most expensive on the market but increasing wholesale prices mean hitherto cheaper fixed rate deals have been withdrawn from the market in many instances.
The latest iteration of the Ofgem price cap comes into effect on 1 October and will remain in place until 31 March 2022. The net effect of the cap is to isolate the tariffs concerned from further increases in the wholesale cost of energy.
This means many suppliers will be selling gas and electricity to consumers at less than cost price, which is why more supplier failures are expected.
The cap is expected to rise steeply when the next adjustment is made in April next year. The new level will be announced in February and will reflect wholesale prices in the second half of 2021.
Mr Kwarteng insists that the reduction in the number of suppliers should not result in a reduction in competition: “We must not see a return to the ‘cosy oligopoly’ of years past, where a few large suppliers simply dictated to customers conditions and pricing.”
For more information on how to respond to the energy crisis, see our stories below.
Energy Crisis – What Should You Do?
As the government holds emergency meetings with the energy sector and commentators predict further failures of small and medium suppliers, these are worrying times for customers. So what, if anything, should you be doing?
Your course of action will largely depend on your current energy arrangements. Here’s the answers to some common questions to help you ensure you’re getting the best value possible in a turbulent and troubled market.
First, find out what tariff you are on
If you’re not sure what tariff you have, or even who your supplier is, dig out a recent bill (or bills, if you have separate suppliers for electricity and gas). Here you will find all the information you need about your energy firm or firms, along with details of your tariff(s).
Are you on a default standard variable rate tariff (SVT)?
If you’ve never switched supplier or haven’t done so for more than a couple of years, you are likely to be on a default (SVT) deal – around 11 million households in the UK have one of these tariffs, where the price you pay can be adjusted by your supplier at any point, provided it gives you 30 days’ notice of any increase.
Prior to the current pricing crunch, these open-ended default deals were among the most expensive on the market, and the advice was always to switch to a cheaper fixed-rate, fixed-term contract – there were usually dozens available.
But that has changed. At present, default deals are among the most competitive. You can still run an energy quote to see if there’s anything cheaper available, but it is likely that your best bet will be to sit tight and wait for prices to reduce.
Default deal? Your prices will rise in October, but you could still be on the best option
Maximum default tariff prices are governed by a cap managed by Ofgem, the energy market regulator. This is adjusted each April and October, and next month it will increase by 12% to £1,277 for typical consumption households, and suppliers are increasing their prices to take full advantage.
That increase is a scary amount – but such is the crisis in the wholesale energy market, default deals are still likely to be among the best value of those available.
Are you on a prepayment meter?
Prepay tariffs – around four million UK homes have one – are also subject to an Ofgem cap. This will rise by £153 to £1,309 on 1 October (again for those with average consumption levels).
Checking to see if there’s a cheaper deal is always a good idea, but as with default tariffs, you may find you’re on a competitive plan, even after the upcoming price rise.
Are you on a fixed-rate tariff?
Some 13 million UK homes are on fixed rate tariffs, where the price per unit of energy used is locked in for a specific period, usually 12 or 24 months.
Traditionally, these have offered the best value, with prices often hundreds of pounds below the Ofgem price cap – and guaranteed not to change, regardless of what happens in the wider market. But over the past week or so, fixed tariff rates have rocketed, and many companies have stopped offering them to new customers.
If you’re on a fix already, it’s almost certain that your best bet is to stay put until it ends. At this point, if you do nothing, you’ll move to your supplier’s default variable rate tariff. But as your tariff end date approaches, you can run a quote to see if there’s another, cheaper fix to which you can move (if you switch within six weeks of your tariff ending date, you won’t pay any exit fees if your current deal levies them).
It may work out that the default deal represents good value at the time – or you can ask your current supplier if they have another tariff that would cost you less.
Remember, you can switch from a variable rate deal at any point without penalty, so if you move to one, you can switch away should a cheaper deal become available elsewhere.
Are you on a non-default variable rate tariff?
A relatively small number of households are on ‘elected’ variable rate deals that, until recently, were priced below the level of expensive default variable rate options. In fact, they were on a par or even cheaper than fixed-rate offers.
However, prices for these competitive variable rate tariffs have increased and many have been withdrawn from the market for new customers. So if you are on one of these plans, you should talk to your supplier to check it doesn’t have a cheaper option.
If that doesn’t work, you should run an energy quote to see if there is a better deal out there – including among standard variable rate deals.
Are you worried your energy supplier might go bust?
We’re hearing a lot of speculation in the press that a clutch of smaller to medium-sized energy suppliers could go bust in the coming days and weeks if the government does not step in with a radical support package.
The important thing to remember is that Ofgem, the regulator, has continuity of supply as its priority, so it will work to ensure that customers of any company that goes to the wall are transferred to another supplier – this is the so-called ‘safety net’ that ensures customers are not left without power.
Again, the government says it is exploring ways to make the safety net as robust as possible. This could involve advancing state-backed loans to encourage firms to take on customers from failed suppliers.
If you are concerned about your energy supplier’s viability, switching to another firm may not be the best course of action at present. First, you may not be able to find a reasonable tariff to move to, and second, your interests will always be guarded by the safety net.
That’s not to minimise the anxiety that such situations can bring about – hearing that your supplier has gone bust will always be a shock. But it should be of comfort to know that a system is in place to make sure any negative impact is kept to an absolute minimum.
Ofgem Appoints EDF Re Utility Point, British Gas Re People’s Energy
Energy market regulator Ofgem has appointed large energy supplier EDF to take on the 220,000 domestic customers of Utility Point and arranged for British Gas to do the same for People’s Energy after the two smaller firms ceased trading last week (see story below).
Whenever an energy company ceases trading, Ofgem’s safety net protocols take effect to ensure customers’ energy supply is not interrupted and any credit balances held with the company are protected. Part of the process includes appointing a ‘supplier of last resort’, in these instances EDF and British Gas, following a competitive bidding round among interested suppliers.
The move comes as the wider energy market experiences unprecedented turmoil due to soaring natural gas and electricity prices on wholesale markets (see story below). Many suppliers are ceasing to market products to new customers because prices are so high. In many cases, the cheapest deals on offer are default standard variable rate tariffs, which historically have been among the most expensive on the market.
The amount suppliers can charge customers on default tariffs is limited by Ofgem’s price cap. This is rising by 12% to £1,277 per annum for a household with medium consumption on 1 October 2021. The increase was calculated in the summer before the current pricing crisis took full hold of international energy bourses, and is now reckoned to be far below what energy companies are paying for wholesale supplies (see story below).
There are fears that this will squeeze smaller suppliers with lower capital resources, leading to more corporate failures, a consolidation of the market into the hands of larger suppliers, and ultimately a reduction in competition.
Ofgem is also likely to increase its cap by a significant amount at the next opportunity in April 2022, possibly sending it above £1,550 a year for typical users.
The government is reported to be holding crisis talks with energy market representatives this weekend to ensure continuity of supply to homes and businesses.
Customer advice
Ofgem’s advice to Utility Point and People’s Energy customers is to wait for EDF or British Gas to contact them over the coming days with personalised information about their new ‘deemed’ tariff. Traditionally, ‘deemed’ tariffs were more expensive than others available from the same company or from the wider market, but unless wholesale market prices decline sharply, this may no longer be the case.
However, once their new account with their new supplier is set up, customers of the two failed firms are free to search for a cheaper energy deal if they so choose.
Ofgem said: “If customers wish to change their tariff or switch supplier, they should ask to be switched to another tariff, or shop around. You won’t be charged any exit fees. Waiting for them (EDF or British Gas) to contact you will be the smoothest way for any credit balances domestic customers had with Utility Point/People’s Energy to be honoured by EDF/British Gas.”
With regard to customers who pay by direct debit, Ofgem said: “You don’t need to cancel your direct debit, but can if you wish to. EDF/British Gas will be in touch with you about whether your existing direct debit will remain in place, or whether they will set up a new direct debit.”
Utility Point customers with smart meters were told: “Some customers with newer models of smart meter should see no loss in smart functionality. Unfortunately, customers with older smart meter models will see a loss of smart functionality, but their supplies will continue uninterrupted. EDF will upgrade these older meters for any customers who request it. Once the transfer to EDF is complete, they will take steps to restore smart functionality.”
Utility Point customers with further queries are asked to visit the EDF website or phone: 0333 009 7120.
People’s Energy customers should visit the British Gas website or call: 0333 202 1052 (if they have a credit meter, where they pay monthly or quarterly in arrears) or: 0333 202 9742 (if they have a pay-as-you-go meter.
16 September 2021: What’s Happening To UK Energy Prices?
These are turbulent times for the UK energy market – and the turmoil will inevitably be reflected in higher domestic energy bills. Here’s a rundown of what’s happening, how it might affect you, and what action you can take…
Wholesale prices are rising…
And they’re rising to record levels. Energy companies naturally seek to pass their higher costs onto their customers, so what happens on the wholesale markets sooner or later affects domestic and business customers.
Why ‘sooner or later’?
How and when you’ll see the impact will depend on what sort of energy tariff you have, and how your supplier buys its wholesale supplies…
- Variable rate tariff customers The cost of a variable rate tariff can fluctuate at any time, although your supplier must give you 30 days’ notice of a price increase. So price rises here are likely to be on the ‘sooner’ end of the spectrum
- What about the price cap? The energy price cap, administered by the market regulator, Ofgem, only applies to standard variable rate default tariffs (more on this below). If you are on a supplier’s non-default variable rate deal, prices could rise beyond the cap level.
- Fixed rate, fixed term tariff customers Fixed deals really come into their own when prices are rising because, as it says on the tin, the prices are locked in for a stated period of time. No matter what happens on the wholesale markets, the price you pay for each unit of energy you use will remain the same, until the contract ends.
- But when the fix ends – what then? That’s the ‘later’ end of the spectrum – but even here, some will be affected sooner than others. Recent weeks have seen the typical cost of fixes soaring ever higher, so anyone coming to the end of a tariff’s lifespan could find themselves paying a lot more for their next fixed contract. They could even find that variable rate deals are cheaper. Further down the line, fixed tariffs will remain expensive relative to prices in the first half of 2021.
What about the price cap?
Ofgem’s cap limits the amount companies can charge their default tariff customers – about 11 million households in the UK. This cap is rising by roughly 12% on 1 October to allow suppliers to charge more because of rising wholesale prices.
If the cap is rising, won’t that sort things out?
Sadly, no. Ofgem did its sums based on what was happening to wholesale prices over the summer, and what it thought might happen over the autumn and winter. It turns out it underestimated the speed and scale of increases.
The new cap was calculated using a gas price of £63 per therm – it’s been as high as £177 per therm in recent days, with a 12-month ‘forward price’ (what you pay if you commit to buying a year in advance) of up to £135 per therm.
With electricity, the price-per-therm used by Ofgem was £70, but it has hit £181 and has been trading at £140 for 12 months.
What seems certain is that the next review of the cap in February (to take effect in April) will see another leap upwards, with Ofgem possibly erring on the side of caution at that point and feeding in a meaty increase.
How will suppliers cope?
Some won’t. As you can read in the stories below, four energy suppliers have gone bust in the past few days, and more are likely to go to the wall in the coming weeks and months.
But as we also explain, no-one will be left without supply. Ofgem’s safety net means customers are transferred to another supplier automatically.
But why are wholesale prices increasing so much?
- Rising demand Last winter was particularly cold across Europe, and more businesses are re-opening in the wake of the coronavirus economic slowdown.
- Lack of wind We are increasingly using renewable sources of energy such as wind, solar and wave to generate electricity, but recent weeks have seen unseasonably calm weather, meaning wind farms have not produced as much energy as expected. This is pushing up the price of traditional fuels such as natural gas, as well as electricity itself.
- Anti-coal sentiment As the popularity of renewables has risen, the UK has mothballed or decommissioned coal-powered generating plants. In some cases these can be brought back online, but it can be a lengthy process, and there may be issues in obtaining the supply of coal (which will itself increase in price).
- Supply interruption This week saw an electricity supply cable between France and England damaged by fire, reducing the amount we can import from the Continent (the UK is a net importer of electricity).
What can consumers do?
Such is the crisis in the domestic market at the moment that most suppliers have withdrawn most or all of their deals – they simply cannot afford to take on new customers. But we can expect more deals to come onto the market once wholesale prices settle – as they are likely to do once supply issues are resolved.
If you’re on a fixed rate tariff with a good few months left to run, it’s probably best to sit tight and see what the market conditions are as you approach the end of your term.
If your fix is nearing its end, keep checking the market to see if you can spot a reasonable deal. And talk to your current provider to see what they can offer, either as far as a replacement fix is concerned, or regarding their default tariff. As noted earlier, the default may even prove the better bet at present.
If you’re on a variable tariff, it’s once again a case of watching for competitive deals, either from the market selection or from your existing supplier.
14 September 2021: People’s Energy and Utility Point Cease Trading, Customers Urged To Sit Tight
Two more smaller energy companies – People’s Energy and Utility Point – have ceased trading as of today, confirming the crippling effect of soaring wholesale prices on the UK energy market. Last week, PFP Energy and MoneyPlus Energy also closed their doors (see below).
Market commentators say rising costs will result in more casualties among energy firms this winter. You can find out here what happens if your energy supplier goes bust.
The market regulator, Ofgem, is advising the estimated 500,000 customers of People’s Energy and Utility Point not to take any action until it has appointed a new supplier. The affected households will not suffer any interruption to supply and any credit balances will remain in place.
Once the new supplier is appointed, customers will be free to switch to another provider if they so choose.
On its website, People’s Energy said: “We are saddened to inform you that People’s Energy is ceasing to trade. Please rest assured that your energy supply is secure and all domestic members’ account credit balances are protected. This includes any recent top-ups that were made as part of the seasonal weighting initiative.
“Ofgem, the energy regulator, will be appointing a new supplier for all our members. Their advice is not to switch, but to wait until they appoint a new supplier. This will reduce any risk of disruption in supply and facilitate the transfer of, and access to, domestic customers’ credit balances.”
Utility Point said: “It is with regret that we must announce that Utility Point is ceasing to trade. Customers need not worry, their supplies are secure and domestic credit balances are protected.
“Ofgem’s advice is not to switch, but to wait until they appoint a new supplier for you and also a to take a meter reading ready for when your new supplier contacts you. This will help make sure that the process of handing customers over to a new supplier, and honouring domestic customers’ credit balances, is as hassle free as possible for customers.”
8 September 2021: Energy Firms Close As Market Reels From Rising Costs
Two of the UK’s smaller energy suppliers – PfP Energy and MoneyPlus Energy – have ceased trading. The estimated 90,000 to 100,000 affected households will have their interests protected by the safety net operated by the market regulator, Ofgem.
Escalating wholesale gas and electricity prices are reported to be the root cause of these collapses. There are fears other suppliers could close over the winter if shortage of fuel supplies in the face of rising demand forces prices ever higher.
Green Network Energy, Simplicity Energy and Tonik Energy are among the suppliers who have gone bust in the past 12 months.
Whenever a firm is in financial difficulty, its situation is closely monitored by Ofgem. If closure becomes inevitable, the regulator finds an alternative supplier to take over the ailing firm’s customers, maintaining supply without interruption.
Customers are not required to take any action as Ofgem works with the firms concerned to honour credit balances and manage debt repayments.
However, customers who are moved to a new supplier will find themselves on a ‘deemed’ contract that is likely to be relatively expensive. It is at this point they should run an energy tariff comparison to see if they can switch to a cheaper alternative – which they are at liberty to do.
You can find out more about what happens when an energy supplier goes bust in Rachel’s article.
Evidence of the impact of rising wholesale prices came in August when Ofgem announced a steep increase in its price cap to allow companies to charge their standard variable rate ‘default’ tariff (SVT) customers more because of rising costs.
The £139 hike will take the cap to £1,277 for a household with typical consumption when it comes into effect on 1 October – its highest ever level since it was introduced in 2019. All the major suppliers have announced increases in their prices to match the higher cap (see below).
The cap is changed twice a year, in April and October. The expectation is that Ofgem will increase it further in April 2022 if there is no cooling in wholesale price inflation.
You can find out more about Ofgem’s price cap here.
Around 11 million households are on SVTs. The main alternatives are non-standard variable rate deals and fixed-term, fixed-rate deals, where the price per unit of energy used is fixed for a stated period, usually 12 or 24 months.
The price of these deals is also increasing, and some firms are offering fixed-rate contracts at a higher price than their SVTs. An effective way to find out whether you can save money by switching tariff and/or provider is to run a quotation on our site.
Switching takes 21 days and there is no interruption of supply. Work will only be required at your property if you change meters as part of the process.
31 August 2021: British Gas Offers To Shield Customers From Price Hike Until 2022
Following its announcement of a 12% increase in the price of its default standard variable rate tariff (SVT) from 1 October, British Gas has offered to freeze SVT customers’ direct debit payments until February 2022.
The October hike is in line with the latest rise in the Ofgem price cap (see below) to £1,277 for households with average energy consumption levels.
British Gas says it will assess the market in February 2022 before making a final decision on changing direct debit payments to reflect the price increase. It says it will smooth out any increase over subsequent months.
Any SVT customers who would rather start paying the increased price immediately (to avoid a higher leap in their bills next year) can amend their direct debit via the British Gas app or by contacting the company.
Ofgem will also announce the next level of the price cap in February, to take effect in April. This will no doubt play into British Gas’s calculations.
The firm says its offer to freeze payments could be worth £50 to customers who take it up: “Freezing direct debit payments until after winter will keep an extra £50 in customers pockets. We want to give our direct debit customers the option to create a bit of extra financial breathing space if they need it.”
Energy Firms Flock To Match Rising Price Cap
26 August 2021
Bulb is the latest major energy provider to announce a price rise for its standard variable rate (SVT) default tariff-holders.
The move follows the announcement on 6 August by the market regulator, Ofgem, that its energy price cap on default tariff prices will rise by over 12% on 1 October.
Typical Bulb customers will pay an extra £2.90 a week when the new, higher cap comes into effect.
Earlier this week OVO Energy announced a 12.25% increase in the price of its Simpler Energy default tariff, effective 1 October 2021. Customers of SSE Energy Services, which is owned by OVO, will see a similar increase.
Rival large firms Eon and Scottish Power will also be raising their prices by similar amounts in October. Ebico, Igloo, So Energy, Zebra and Orbit have also announced increases.
The new Ofgem cap, which applies to customers on SVT default tariffs, will stand at £1,277 for households with average consumption levels – up by £139 on the current level. It is now at its highest since it was introduced in January 2019.
The raft of price increases announced in recent days take firms’ SVT tariffs up to or close to the cap. More increases are thought to be in the pipeline.
Details of the Ofgem price cap, including the figure for households with prepayment tariffs, can be found below.
EDF was the first company to respond to the price cap announcement last week, revealing its own 12% increase, again effective on 1 October.
British Gas, the UK’s largest supplier, is expected to announce a price increase for SVT-holders in the coming days.
Ofgem has raised the level of the cap to enable companies to charge more because they are facing significant increases in the price of wholesale energy, particularly natural gas.
Ofgem has urged customers on SVT default tariffs to shop around to potentially save ‘hundreds of pounds’ by moving to a cheaper tariff.
EDF Price Rise To Match New Cap In October
At-a-glance
- First company to respond to Ofgem price hike
- 12% increase effective for default customers from 1 October
- ‘Hundred of pounds’ savings for those who shop around
Energy giant EDF has become the first supplier to announce a price hike in line with the recent increase in the official energy price cap administered by regulator Ofgem (see story below).
EDF’s move, which is expected to be matched by other leading providers, will take the typical cost of its standard variable rate ‘default’ dual fuel tariff to £1,277 – a 12% increase – from 1 October. This is the date on which the new Ofgem cap comes into effect.
Philippe Commaret at EDF said: “We know a price rise is never welcome, especially in tough times. In 2020, prices for our standard variable customers fell by an average of £100 a year, and we’ll cut prices again as soon as we’re able.
“As Ofgem has explained, it is global gas prices that have caused the unprecedented increase in wholesale energy costs and as a sustainable, long-term business we must reflect the costs we face.
“Customers on tariffs that are due to change in October will be written to, reminding them to check that they are on the best tariff for them.”
Rising wholesale costs
The regulator has raised the cap to £1,277 – it’s highest level since it was introduced in 2019 – so that suppliers can charge their default tariff customers more to take account of increases in the wholesale cost of energy, particularly natural gas.
Bulk prices have risen by 50% in the past six months due to cold weather and increasing demand triggered by industry emerging from Covid-19 lockdowns.
An estimated 11 million households are on various suppliers’ default tariffs, largely because they have never switched tariff or because they haven’t switched for two or more years and have moved to their supplier’s default deal as a result.
A further four million households are on expensive prepayment tariffs, where the Ofgem cap will also rise on 1 October, up £153 to £1,309.
£100s of savings
Ofgem says this combined total of 15 million households could save “hundreds of pounds” on their annual energy bills by shopping around and moving to a cheaper deal.
Anyone switching now would be comfortably on their new tariff before 1 October – the process of finding a cheaper deal takes a matter of minutes, and the switch itself will be complete in 21 days.
There is no interruption to supply and no need for work inside or outside your property.
Update 6 August 2021: Ofgem Price Cap Leaps £139 To Record £1,277 In October 2021
At-a-glance…
- Rise to hit 11 million default tariff holders
- Prepay tariffs cap also rises
- Regulator blames soaring wholesale gas costs
Energy market regulator Ofgem is raising its cap on standard variable rate default tariffs by £139 on 1 October 2021, it announced today. The 12% increase will take the cap, which applies to 11 million UK households, to £1,277 – its highest ever level.
The cap on prepayment tariffs will increase by £153 on the same day, taking it to £1,309. Around four million households will feel the effect of this rise.
Both caps will be reviewed over the winter and new levels will take effect in April 2022.
Ofgem imposes the cap to limit how much energy companies can charge customers on default and prepay tariffs, but it has increased the level because of soaring wholesale energy market prices, citing a 50% increase in the price of wholesale gas.
The quoted cap figures apply to households with average annual consumption. When households are on default tariffs, it’s usually because they have never switched provider or tariff, or because they have not switched for two years or more.
Many people in rented accommodation and on lower incomes have prepayment meter tariffs.
The Ofgem cap does not limit the size of bills but the amount the energy company can charge for each unit of gas and electricity used, plus any standing charges. Bills therefore differ according to consumption levels in each household.
Substantial savings
Substantial savings can usually be obtained by those who switch from a variable rate default tariff to a fixed-rate or competitive variable rate deal (£477 is the minimum saving of the top 10% of savers who switched gas and electricity through Comparison Technologies, Forbes Advisor’s energy comparison partner, in the period between 1st Jan 2020 and 31st Dec 2020).
There are also competitive prepayment tariffs available to those willing to switch.
Ofgem commented: “Customers can avoid the increase by shopping around or asking their supplier to put them on a better deal.”
Those on default and prepay tariffs now have just under two months to switch energy provider or move to a cheaper tariff with their existing provider. The good news is that switching takes 21 days – and there is no interruption to supply or any need for work at your property, inside or out. Running a quotation takes a matter of minutes using our comparison service.
Update 29 July 2021: Ofgem Chief Hints At £150 Price Cap Hike
Jonathan Brearley, head of the energy market regulator, Ofgem, says its energy price cap could rocket by £150 from 1 October 2021. The actual increase will be announced on Friday 6 August 2021.
The price cap applies to standard variable rate ‘default’ tariffs, and limits how much energy providers can charge for units of gas and electricity and any standing charge associated with the tariff. At the moment it stands at £1,138 a year for a typical household with average consumption.
An estimated 11 million households are on default tariffs, either because they have never switched provider or because they have been moved to a default arrangement by their provider following a previous deal coming to an end.
There is a similar cap in place for the estimated four million households with prepayment meters – it stands at £1,156 a year.
Most providers set their tariff prices at the maximum allowed by the cap. As the annual figure is a cap on unit rates rather than on the size of bills, the amount payable will always depend on the amount of energy used.
Mr Brearley says the cap will rise because global prices for fossil fuels, especially gas, are increasing at an unprecedented rate. Ofgem will enable suppliers to charge higher prices because they are paying more on wholesale markets.
“Regrettably, the increase in wholesale costs will feed through to the price cap and, although final analysis is not complete and other costs will also determine the overall level, it could add around £150 per household to the next level of the price cap,” he said.
Ofgem announces the change to the price cap in advance to allow those affected an opportunity to switch to a cheaper deal. The regulator actively promotes switching, pointing out that there are many cheaper tariffs available to those on default deals – often fixed-term, fixed-rate tariffs that lock in the unit price for 12 or 24 months.
Mr Brearley added: “While the price of these fixed contract deals is also increasing on the back of higher wholesale energy prices, if you shop around you may well still be able to save hundreds of pounds on your energy bill.”
Switching now would mean locking in today’s rates ahead of a further expected surge in wholesale prices in the autumn.
Auto-switching on horizon
As we reported last week, the government is considering introducing automatic switching for those on default tariffs unless they opt out of the process.
However, this would not be introduced until 2024, leaving default customers vulnerable to relatively high energy costs for the next three years unless they choose to switch.
*At least 50% of savers who switched via our partner of choice energyhelpline in the period between 1st Jan 2021 and 30th June 2021 saved £101.
