Ofgem will have to spread PPM premium across the market

The government’s decision to task Ofgem with ending the prepayment meter (PPM) standing charge premium will mean higher bills for other customers, Citizens Advice has warned.

As part of this week’s Budget announcement, chancellor of the exchequer Jeremy Hunt announced an end to the current arrangements under which customers on PPMs pay £45 more in standing charges than those on direct debits.

The mismatch in standing charge payments will be dealt with via the Energy Price Guarantee (EPG) initially. But, according to the Budget documents, Ofgem has been asked to identify options for tackling the premium when the EPG runs out in just over a year’s time.

At Energy UK’s post-Budget breakfast briefing on Thursday (16 March), Citizens Advice chief energy economist Richard Hall said removing the standing charge premium would initially be bankrolled by the Exchequer but Ofgem can only redistribute money between consumers.

“Given Ofgem doesn’t have tax and spend powers that will inevitably be paid for by other consumers. Whilst we may see a continuation of the premium being removed, who is paying for it will change.”

“Smearing” the cost of the standing charge premium across the wider group of customers would increase bills, albeit only to the tune of “single digit” figures per annum, he said.

Daisy Powell-Chandler, an aide to David Cameron when he was prime minister, told the briefing that his successor Rishi Sunak is “geekily excited” about solving grid connection delays.

“The government has really internalised the view that getting to grips with a net zero energy system is going to be positive for our energy security as well as for the environment,” she said.

But Powell-Chandler, now head of energy and environment practice at Public First, said research carried out by the polling company shows many homeowners are reluctant to spend money on insulation because they have nothing to show for it, unlike buying a new sofa.

Noting that this is especially the case when times are tight she said: “This is a national level problem and individual agency on energy efficiency has proved insufficient for motivating people to take steps that are better for them but also better for the country.

“We’re probably going to need more intervention, presumably at the local authority level, in order to get housing insulated.”

Powell-Chandler expressed confidence that the Budget commitment to invest £20 billion over the next two decades on carbon capture, use and storage (CCUS)  would be sufficient to meet the UK’s target for rolling out the technology.

“We’re going to have what we need in place to at least hit the lower end of the government’s 2030 targets around carbon capture utilisation and storage.”

But Chaitanya Kumar, head of environment and green transitions at the New Economics Foundation thinktank, said he is “sceptical” that the £20 billion commitment will be sufficient to meet the UK’s target for rolling out CCUS and described the government’s mooted small modular reactor competition as a “reheating” of a similar exercise announced by Hunt’s predecessor George Osborne.