By Nicholas Earl
Energy bills will remain high this winter and well above normal levels, despite market watchdog Ofgem confirming a minor reduction in the price cap.
The energy price cap has been slashed from £2,074 per year to £1,923 in the latest update from Ofgem, a seven per cent quarter-on-quarter decline.
However, this is well above pre-crisis conventions of £1,000-£1,200 per year before rebounding post-pandemic demand saw the collapse of 30 suppliers and record gas prices caused energy bills to climb to all-time highs.
While Y per year is below the monster peak of £4,279 per year – customers will no longer have the support of subsidy packages from the government which contained bills to £2,500 per year for average use for customers while also shielding businesses from the brunt of high wholesale costs.
This means households will be going without support with energy bills 50 per cent higher than conventional market windows during the coldest months of the year when demand will be at its peak.
Jonathan Brearley, Ofgem CEO, said: “It is welcome news that the price cap continues to fall, however, we know people are struggling with the wider cost of living challenges and I can’t offer any certainty that things will ease this winter.
“That’s why we’ve introduced new measures to support consumers including reducing costs for those on pre-payment meters, and introducing a PPM code of conduct that all suppliers need to meet before they restart installation of any mandatory PPMs.
“There are signs that the financial outlook for suppliers is stabilising and reasonable profits are returning. With the small additional allowance we’ve made to Earnings Before Interest and Tax (EBIT), this means there should be no excuses for suppliers not to be doing all they can to support their customers this winter, and to reinforce this we’ll be introducing a consumer code of conduct which we will look to have in place by winter.”
This code will ensure there are clear expectations of supplier behaviours especially for their most vulnerable consumers with whom suppliers should be reaching out proactively, with compassion and understanding. There are great examples of suppliers already doing this but I want to see this become the norm in such an essential sector that has such a big impact on people’s lives.”
Meanwhile, NEA chief executive Adam Scorer said`: “The price cap does not protect those who simply cannot afford the cost of keeping warm,” said
“The UK Government can still act – by directly reducing energy bills via targeted energy discounts or a more targeted Energy Price Guarantee for low-income and vulnerable households.
“It knows how to do it. It has millions of pounds unspent from previous schemes. It is aware that failing to act will consign millions to another winter of despair and suffering.”
Earlier this week, Cornwall Insight’s principal consultant Craig Lowrey told City A.M. he expected energy bills to remain above normal levels until the end of the decade.
“We have modelled the cap out until the end of the decade and those numbers indicate – based upon where the wholesale markets is – we don’t see household energy bills returning to the levels we saw in 2021-22 this decade,” he said.
This will be seen in future price cap updates, with Cornwall Insight not predicting the cap will decline significantly further next year, meaning customer bills will remain historically elevated deep into 2024.
The latest price cap update has initiated the next chapter in a protracted industry over the role of the price cap in protecting customer bills.
Simon Oscroft, co-founder of So Energy argued that Ofgem’s method for establishing the price was loading additional costs from the year on to suppliers – making it harder to price below the cap and offer customers cheaper deals.
This is another reason why the price cap is no longer fit for propose. Suppliers, consumer groups, and now even Ofgem’s own chief executive recognise that it is doing more harm than good. In its place we need short term targeted support this winter, but also a more permanent replacement in the form of ongoing targeted support for those customers most in need.”
This follows Brearley suggesting that the price cap could be in need of reform earlier this month.
In an interview with The Guardian, he urged minister to consider whether the “very broad and crude” price cap is still fit for purpose following the domestic energy crisis, which saw 30 suppliers collapse.
Greg Jackson, founder of Octopus Energy, has once again argued in favour of the price cap – which he considers the “single most effective policy to improve energy.”
He said: “Initially, it drove efficiency programmes because companies could no longer pass on bloated costs to consumers. Then it cushioned the impact of the energy crisis, buying crucial time for the government to implement support programmes.
“It’s now forcing energy companies to pass on falling wholesales costs rather than pocketing profits. It protected customers – especially older and more vulnerable ones – from the loyalty penalty, and helped bring an end to the wild west of cowboy companies who sold at unsustainable prices leaving everyone to pick up the tab when they inevitably failed.”
The new price cap will kick in from the fourth quarter of 2023.
Ed Miliband MP, Labour’s Shadow Energy and Net Zero Secretary, said: “Higher energy bills are unfortunately here to stay under the Conservatives, even with this fall, bills are significantly higher than they were only three years ago.
“The problem is the Tories have learnt no lessons from this crisis. They continue to side with the oil and gas companies making record profits over hardworking British families, with their refusal to fix the gaping loopholes in the windfall tax or make the sprint we need for clean power, keeping the onshore wind ban and failing to insulate homes.”
