Energy UK warns industry cannot absorb crisis costs

More suppliers are likely to fail and “further action” may be required to support the market as Russia’s invasion of Ukraine pushes gas prices even higher, Energy UK has warned Rishi Sunak.

In a letter to the chancellor of the exchequer, sent ahead of the Treasury’s Spring Statement on 23 March and seen by Utility Week, the trade association’s chief executive Emma Pinchbeck wrote that the sector is “horrified” by the invasion of Ukraine and stands “fully” with any government actions needed to support the country’s people and the UK’s neighbours.

However, Pinchbeck’s letter said the crisis has resulted in “real consequences for industry and our customers that need to be managed”.

She asked the chancellor to re-evaluate the risk of high energy prices to the UK economy and if necessary, to provide extra measures to support households and businesses with the costs of energy.

With retailers subsidising some customers, who are on the current price cap tariff, by up to £700, Pinchbeck warned that the industry “cannot absorb the costs of the crisis alone”.

Increased risks of bad debt and high prices means that Energy UK expects more retailers to join those that have exited the market since wholesale gas prices began to soar in the second half of last year.

While the package of measures proposed by the chancellor last month are “extremely welcome”, Pinchbeck wrote: “The market conditions look to be outpacing the welcome support that you provided, with some forecasting average bills of £3,000 this autumn. However, we warned that the high prices were likely to endure and that, if so, further action might be required, and we can see the costs and risks to the economy – including inflationary impacts – running into 2023.”

Sunak unveiled a package of £9.1 billion worth of measures last month to cushion customers from the immediate impact of higher energy bills, including a £150 council tax rebate this spring and a £200 discount later this year on energy bills, which will be clawed back in future years.

However, according to newspaper reports, Sunak is unlikely to provide immediate relief for cost of living in this month’s statement.

The Energy UK letter has emerged as a new analysis found that nine million poor people live in energy-inefficient homes, leaving them particularly vulnerable to inflated energy prices.

According to an analysis, carried out for the Chartered Institute of Housing’s 2022 UK Housing Review by the Joseph Rowntree Foundation, the highest rates of energy efficiency are in owner occupied stock.

More than a fifth (22%) of owner-occupiers live in homes with an EPC (energy performance certificate) rating of E or below, while 27% of properties are in Bands A to C.

This is an even higher percentage than in the private rented sector, where 29% of properties are in the A-C and 19% in the E or below brackets respectively.

A total of 6.8 million people are living in poverty in private homes with low energy efficiency, of whom the majority are owner-occupiers, according to the analysis. Even before the recent surge in energy prices, the JRF analysis showed that 39.1% of owner-occupiers were living in fuel poverty.

Although higher poverty rates are found in the social rented sector, council and housing association tenants are more likely to live in energy-efficient homes than those living in private rented or owner-occupier tenures.

Reflecting past investment to improve the energy efficiency of the tenure, 56% of social housing tenants in England live in a property in EPC bands A to C and only three per cent of properties are rated E or below.