Ovo calls for progressive deficit fund tariff in 10-point plan

Ovo Energy has called on ministers to subsidise bills through a progressive deficit fund tariff that would charge higher usage households more for their energy, while protecting poorer consumers.

The move is part of a 10-point plan to tackle the energy crisis which was published alongside the announcement the company was setting aside £50 million to help vulnerable customers.

Using a deficit fund to freeze the price cap at its current level is an idea that has been heavily pushed by Scottish Power. Under its proposals, suppliers would use bank loans to cover the difference and this money would then be recouped from bills over the following two decades.

Ovo said while it also favours a deficit fund, the scheme “can’t be open ended and unlimited” and that it should be “progressive just like the tax system”.

Its plan would see a limit on the number of subsidised units of energy that households receive. This would provide more support for the most vulnerable before tapering off for higher usage and higher income households.

Recognising that not all high usage households are higher earners, Ovo said exceptions could be made for vulnerable households who need to use more energy for things such as medical equipment, for example.

Expanding customer support

The supplier called for the £400 rebate of the Energy Bills Support Scheme to be paid in full before Christmas, as well as more funding for consumer advice and debt charities to help tackle the “considerable shortfall” they are facing in financial resources.

A Fuel Poverty Taskforce should be established to identify those most in need as “an urgent priority”. The taskforce would bring together data from a range of sources such as charities, energy companies and government departments to provide a safety net, ensuring vulnerable households are supported for as long as needed.

The company’s 10-point-plan also includes flipping the current price cap disparity between customers on prepayment meters (PPM) and those paying by direct debit. It said PPM customers should be charged less, rather than more, for their energy.

Ovo also wants to see standing charges abolished to make bills simpler and fairer. The company said while the economic principle behind standing charges “is sound”, the reality is they represent the “biggest source of customer confusion” on bills. It further explained that consumers must be able to make a clear link between the number of units they use and the amount they pay in order to make a meaningful impact on energy efficiency.

“Doing away with standing charges is the simplest way to make energy easy to understand. It will also benefit low income households more than wealthy households, and further reward energy efficiency. It is a compromise, but definitely one worth making,” it explained.

Efficiency

Furthermore, the company said there should be a national energy efficiency effort, drawing comparisons to ‘digging for victory’ campaign in the Second World War which saw the UK lower dependence on food imports by growing fruits and vegetables on spare land.

“In the same way, we need a national effort to insulate. To lower bills further, regressive social policy costs need to be removed and shifted into the more progressive general taxation regime,” Ovo said.

It additionally called for longer-term strategic thinking at a national level to secure energy supplies as the sector enters what it described as an era of global competition.

The company said the current mechanics of the price cap means it is now buying energy just three months in advance, exposing consumers to extreme price volatility. Bills, it said, would be lower and more stable if future energy needs were hedged further in advance.

“Over the past 10 years, the free market approach has worked to deliver affordable energy for the UK but we should accept that the next ten years are going to look very different,” it added.

Ovo said the Future System Operator that is due to replace the Electricity System Operator must therefore have a mandate for securing long-term energy demand, guaranteeing physical supply and providing price stability.

Furthermore, the plan urged the revival of the Department of Energy and Climate Change (DECC), with concerns the current mandate of the Department for Business, Energy and Industrial Strategy (BEIS) is too broad.

Bringing back DECC, Ovo said, would ensure there is a secretary of state “solely focused” on building a low-cost, low-carbon energy system.

Finally, a carbon tax on the profits of large oil and gas companies should be introduced on an ongoing basis rather than a one-off windfall tax.

The revenue collected from this should be invested in decarbonisation, with a “carbon dividend” being redistributed to low-income and fuel poor households to support them through the net zero transition

Ovo added that the introduction of a carbon tax would enable the removal of “regressive environmental levies” on bills, allowing the Feed-in Tariff and Renewables Obligation scheme to be funded from general taxation. It said VAT on energy should be removed.

The supplier’s £50 million support package includes debt repayment holidays for all PPM customers, as well as a £10 increase in emergency top-up credit to £15.

Customers most in need will also be given free energy saving products such as smart thermostats.

Stephen Fitzpatrick, founder of Ovo, said: “The stakes are high but the scale of ambition needs to be higher. With the new prime minister due to arrive next week, there isn’t a moment to waste to find a way out of this crisis. Important and difficult decisions need to be made quickly.

“Some of these will need to take immediate effect, some in the months and years ahead. But we must start now… With fresh thinking, new leadership and bold action, it is still possible to keep everyone in Britain warm this winter.”

Ovo’s chief executive, Raman Bhatia, added: “Our immediate focus is what we can do to help keep the lights on and our customers warm this winter. We are urging the government to increase its support for those that need it.”

A government spokesperson said in response to the plans: “Direct support will continue to reach people’s pockets in the weeks and months ahead, targeted at those who need it most like low-incomes households, pensioners and those with disabilities.

“As part of our £37 billion package of help for households, one in four of all UK households will see £1,200 extra support, provided in instalments across the year, and most people will receive a £400 discount on their energy bills over winter.”

They added that the civil service is making preparations to ensure any additional support to consumers can be delivered as quickly as possible when the new prime minister takes office.

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.