Industry reacts to ‘simply unaffordable’ price cap hike

Following confirmation by Ofgem this morning (26 August) of an 80% increase to the price cap in October to £3,549 per year, a number of industry voices have urged the government to step in and alleviate the pressure on consumers.

Ministers have been criticised for failing to introduce adequate measures to help households and there are calls for the Energy Bills Support Scheme to be extended to reflect the recent price hikes.

Additionally, several industry chiefs have called for a bigger focus on installing insulation to stave off rising bills.

Utility Week presents a round-up of the reaction to the record price cap increase:

Dan Alchin, director of regulation, Energy UK

“This rise, while widely predicted, will be hugely worrying to customers. We know many customers are already struggling with energy bills and other costs and for millions of households, these latest increases will be simply unaffordable.

“The rise is driven by the cost of buying gas on the wholesale market, which has been at record levels for about a year now – with prices this week ten times what they were before the crisis. These costs are out of the control of energy retail suppliers who need to recoup them, otherwise we risk more going out of business in addition to the 30 that have done so since last August – causing huge cost and disruption to customers.

“However bills of this size were unimaginable a few months ago and we cannot expect customers to bear the brunt. Retail suppliers will continue to do all they can to offer help and support, especially to their most vulnerable customers, but faced with bill increases of this size and the numbers of customers who will need support, it won’t be enough.

“The government must step in urgently and put in place further support for this winter and with energy costs likely to remain high for the foreseeable future, look at ways to keep bills down next year as well – as we outlined in our letter to the chancellor last week.”

Adam Scorer, chief executive, National Energy Action

“The scale of harm caused by these price rises needs to sink in. A warm home this winter will be pipedream for millions as they are priced-out of a decent and healthy quality of life.

“We’ve all seen the estimates from Cornwall Insight for the past months. Government has had ample time to prepare an intervention to match the challenge. We know who gets hit hardest, what impact it will have and how to get money into the pockets or off the bills of the most vulnerable.

“Without bold action to support the most vulnerable and those on the lowest incomes, this will effectively prise their fingers from the cliff edge and push them over the precipice.

“The government needs to immediately upgrade the household support package it first announced back in May. Households need money in their pockets to weather this storm or we are going to see millions in dangerously cold homes, suffering in misery with unimaginable debt and ill health.

“Even with a mild winter, millions are facing a big freeze. Action is needed now to prevent the bleakest of winters.”

Jess Ralston, senior analyst, Energy and Climate Intelligence Unit (ECIU)

“The government doesn’t have a serious plan for dealing with the gas crisis and without one, as the IFS has pointed out, the £15 billion bills bailout for this winter may have to grow and be repeated next winter. The elephant in the room is the cost of gas and unless households are helped to use less by conserving heat with insulation, bills will remain high.

“The ECO insulation scheme has knocked £600 a year off the bills of millions of households even before this latest hike, but funding for it remains low. Shifting policy costs on to general taxation will provide only a little relief and more UK gas won’t drop the price as we’re part of an international market.”

Keith Anderson, chief executive, Scottish Power

“The size and scale of this issue is truly catastrophic for UK households and that’s why only a big solution can tackle it once and for all to shelter people from the worst this winter.

“We have offered government a plan, backed by the industry, that can be delivered this year, tailored in line with their priorities and will support the UK economy – with the cap set at £3,549, what billpayers need now is to hear what additional help is coming.”

Simon Oscroft, co-founder of So Energy

“Even though we’ve known for some time roughly what October’s price cap level would be, today’s announcement confirming the level at £3,549 is a sobering body blow for customers. Putin’s war is driving these price rises, and this requires a wartime response from the government.

“That is why we are calling on the government to double this winter’s Energy Bill Support Scheme to £800 and to quadruple the Warm Homes Discount for the most vulnerable to £600. This is the simplest, most targeted and crucially the quickest way to get support directly to customers before this price hike takes effect.

“The latest price projections into 2023 make for even worse reading, showing bills could increase to over £6,000 next year. This will require further government intervention, such as the proposed Tariff Deficit Scheme which we support.”

Clare Moriarty, chief executive, Citizens Advice

“Every day our advisers help people in desperate situations: people who can’t get to the end of the month without a food bank voucher, parents unable to afford nappies and patients with no credit to call their GP.

‘‘Without more support, the soundtrack to winter will be the beeping of emergency prepayment meter credit running out and the click of lights and appliances being turned off.

“We need a plan, not platitudes. Government support has to match the scale of this crisis. There must be a financial lifeline for those who need it most.”

Ian Barker, managing director, BFY Group

“We need to swiftly agree a centralised suite of measures that will help customers through the winter, and work together to put in place a long-term market structure that provides the UK with greater energy security and price stability for customers.

“These are unprecedented times, in many ways worse than the Covid pandemic, as the whole of the UK will suffer from higher and more volatile energy prices over what is forecast to be a number of years – unless dramatic change is made. A suite of measures to reduce energy bills is needed now to protect UK customers and slow down the rate of inflation.  The UK has some tough decisions to make, and they need to be taken soon to avoid a winter tsunami of unprecedented social and economic hardship.

“The volatility in the wholesale markets is making it hard to project with certainty what the prices for next year could be – we’re not yet in the price setting observation window. What we can say is that the trend is up, we are continuing to see a reduced security of supply – which means the risk of a £7,000 price cap is very real without central intervention.”

Dr Gemma Berwick, senior consultant, BFY Group

“We cannot have a market where renewables which should be sold for ‘normal prices’ are being sold at super-normal prices; the July 2022 CfD auction for wind and solar was £40-45 a MWh, yet yesterday gas prices resulted in renewables being sold on the forward market for Winter 22 at £700 per MWh.

“This is like a pint of beer which should be getting sold for £4 to £5 but instead it’s being sold for £70 a pint. We should all accept that something needs to change.”

Consumer protection will be discussed in more detail at Utility Week Forum this November. For more information and to book your place, see our website.