Industry urges reviving energy department to tackle bills crisis

The industry has urged the government to re-establish a dedicated Department of Energy as part of a wide-ranging package to tackle the spiralling bills crisis, which embraces Scottish Power’s proposal for government-backed loans to slash next year’s price rises.

In a letter to chancellor of the exchequer Nadhim Zahawi, sent on Wednesday (17 August), following last Thursday’s meeting between industry bosses and the government, Energy UK’s director of advocacy Dhara Vyas warned that “swift action” is “crucial” because anticipated increases in bills will be “unaffordable for too many households”.

“The crisis we are facing will impact every household and business in the UK as much as the Covid pandemic and constitutes a similar national emergency’, she wrote.

According to research from the University of York, reported in the Guardian today, households containing 45 million people will be officially classed in fuel poverty if the price cap increases to more than £4,200 next January, as forecast by Cornwall Insight last week.

The letter said the government has a “limited number of options available given the timescales” so urged it to opt for the “most practicable measures”.

In the short term, Energy UK urged ministers to “immediately” commit to increasing the amount of support this winter through the Energy Bills Support Scheme (EBSS), which is already due to give households £400 apiece between October and next March.

“An enhanced EBSS is the most straightforward, practical way to immediately provide broad support to customers ahead of Christmas,’ it said.

Then it recommended stabilising next year’s bills by using government-backed loans to smooth rising wholesale costs over a longer period, which could then be repaid over a 10 to 15-plus-year period.

Non-domestic customers, who do not currently benefit from the limited protection provided by the energy price cap, could benefit from this stabilisation package as well as householders, according to the letter.

This deficit tariff scheme would be designed to offer protection to consumers until a broader reform of the wholesale market can be brought forward.

Energy UK called for both Tory leadership candidates to back the immediate establishment of a high-level energy expert panel to tackle high retail prices and set out a glide path for moving away from the proposed deficit tariff arrangements.

And given that gas prices are unlikely to fall in the near term, the letter called on the next PM to set up a dedicated Department of Energy,

This ministry should be tasked with working across government to prioritise an energy transition that delivers the UK’s net zero targets, reform the retail market, improve the efficiency of the UK’s building stock and reduce demand for energy system.

The UK last had a dedicated energy department between 1974 and 1992 when it was wound up following the privatisation of gas and electricity. The last Labour government subsequently established the Department for Energy and Climate Change, which was then absorbed into the Department for Business, Energy and Industrial Strategy in 2016.

Vyas said: “Time is running very short ahead of October and we know many customers are already struggling after the last price rise – so the predicted increases will simply be unaffordable for millions of households.

“Given the urgency, our industry believes the most practical way to help customers ahead of Christmas will be to increase the amount of support made through the Existing Bills Support Scheme.

“However, energy bills are set to remain high for the foreseeable future so it will be crucial to put something in place that will shield customers from these. A government-backed loan scheme could help do just that by spreading the costs from an exceptionally volatile few months over a much longer period.

“The high cost of energy, driven by record wholesale gas prices that continue to rise, is unavoidable at present. Suppliers need to recoup these costs otherwise we will see more of them go out of business, adding more expenses and disruption to customers. But this way we can tackle further increases before they hit customer bills.

“We realise that this will involve both further government expenditure as well as a very significant intervention. But we need solutions that match the scale of the problem. The consequences of leaving customers to face bills that would have been unimaginable even a few months ago demands that we do whatever it takes to help them.”

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.