Energy sector needs some retail therapy

With an announcement on energy bill support expected imminently, Energy UK’s director of regulation says a radical move to freeze the price cap would match the scale of the current crisis. While there is a clear need to solve the immediate affordability problem, Dan Alchin argues that the sector must seek long-term solutions to avoid such a crisis from reoccurring.

As I write this – and after a campaign that nobody has described as too short – we know now the identity of the new prime minister. An in-tray which has been busily growing during the political hiatus of the past few weeks will greet Liz Truss – and her top priority must be taking urgent action on energy bills.

October’s price cap rise was hardly unexpected given the projections in recent months, but that’s no consolation to customers facing bills that were unimaginable even just a few months ago. It wasn’t that long ago that we were explaining to some dismay why the price cap was going up by just under £150. October’s rise is ten times that.

An occupational hazard when writing during turbulent times is the danger of being overtaken by events by the time the article is published. In this case, that eventuality would be very welcome because time is running very short to put in any measures in ahead of October.

There is plenty of speculation that the new government is planning a major intervention to freeze bills – potentially for both domestic and non-domestic customers, whose plight has become increasingly evident in recent weeks. This would undoubtedly be a radical move but would also match the scale of the crisis, which is exactly what ourselves and many other groups have been calling for.

Millions of customers are already worrying about how they can afford these bills and the effect on people’s lives and wellbeing, especially when the costs for other essentials are also shooting up – not to mention the wider economic effects – all justify calling this an emergency. Suppliers also face a huge challenge. Nobody wants to be sending bills to customers that can’t afford them and not only will there be more callers needing help than ever before but they will be in worse situations than ever before.

Suppliers continue to do everything possible to support their customers and to work closely with charities and consumer groups to provide help and advice – but they also know there simply isn’t enough go around.

Whether the government intervention mirrors the call we made in our recent letter for immediate action remains to be seen. But whatever they do, it must be quick and it must also recognise that energy costs will remain high for the foreseeable future. That’s a major reason why we have backed the deficit tariff scheme, which also has the benefit of taking the cost off bills before they reach the customer – so reducing the stress and worry that we’ve talked about and preventing the need to scramble round for a solution after these bill rises have been announced.

Any plan will of course involve a big commitment in terms of expenditure but this will pale in comparison with the cost of not taking decisive action to help customers both this winter and next year. We shouldn’t forget that one of the reasons the October bill rise – and those projected for next year – are so terrifying for customers is because so many of them are already struggling. In recent days both Citizens Advice and the Fuel Bank Foundation have confirmed huge increases in the number of households seeking help – which is even more alarming when you consider this has been happening over the summer months.

So when talking about dealing with the immediate crisis, we need to bear in mind that this could stretch over the next 12 to 18 months. However, we also need to avoid being in this situation ever again. We clearly have to reduce our dependence on gas as the predominant cause of this crisis but the fragile state of our retail sector – exacerbated, it has to be said, by poor regulation – left it particularly ill-equipped to withstand price shocks.

We need long-term reform of the sector and its regulation so that we have a sustainable retail market with suppliers who can invest and innovate and support their customers through the changes that net zero will bring – rather than just being in a constant battle to survive.

What is the future for a price cap that was never designed for this situation, that has contributed to some of the difficulties and whose purpose is understandably being questioned? And if we all agree that making homes energy efficient is the single most effective thing we can do to help customers and keep bills down permanently, can we start putting this into practice on a proper, comprehensive, nationwide basis?

We very much hope the government is about to do everything possible to help our customers through what will still be a very difficult few months – but let’s also work to put both them and retailers in a better place once we’re through to the other side.

The cost-of-living crisis will be discussed in more detail at the Utility Week Forum in November. For more information and to book your place click here.