Urgency trumps form on energy bills support

The urgency in providing energy bill support this winter is now more important than exactly how it is delivered, industry experts have said.

It comes amid frenzied speculation as to what support for billpayers Liz Truss will unveil this week, ahead of an expected announcement on Thursday (8 September).

While no firm details have been revealed, there have been widespread reports that the incoming prime minister will freeze the price cap at around £2,500, with the £400 rebate and scrapping of green levies reducing costs further still.

This is expected to be recouped via general taxation as opposed to consumer bills as was previously mooted. Total costs and the duration of the package are still speculative although according to Bloomberg, freezing the cap could cost as much as £130 billion over an 18 month period.

Further reports indicate that the government will offer support for small business customers, many of which are struggling with soaring energy costs.

David Watson, head of energy transition at Cadent Gas, told Utility Week: “There are different ways the government could choose to take action, each with pros and cons. The most important thing however is that we’re taking action, and that it happens before the planned price cap increase from Ofgem.

“The difference between each of these models is probably marginal when you compare it to the urgency with which the government needs to act and, by the sounds of it, are planning to act.”

With a cap freeze thought to be the most likely outcome, major concerns have been raised about the impact this will have on demand with supplies likely to be constrained further by the continuing war in Ukraine over the winter.

Jeff Hardy, director at consultancy Sustainable Energy Futures and a senior research fellow at the Grantham Institute for Climate Change and the Environment at Imperial College London, explained his thinking to Utility Week.

He said: “My main worry about the way it’s being done is, if you protect all consumers against price rises you have zero incentive, particularly for more affluent consumers, to reduce energy use over winter and there’s a realistic chance this winter that we’re going to have real tight supply.

“So you’re taking away that signal… at the very least, what needs to happen is government needs to have a really good communications campaign alongside this that basically says ‘we’re stepping in to help you because it’s the right thing to do, however we might need your help to help us as well’.”

Meanwhile Adam Bell, the former head of energy strategy at the Department for Business, Energy and Industrial Strategy, and current head of policy at management consultancy Stonehaven, also raised concerns.

Bell believes consumers should be offered financial support of somewhere between £2,000-£3,000 instead of a freeze in the price cap.

He said: “My preference is relatively simple, which is just to effectively give people money to cover the difference in cost over the course of this winter. It’s much simpler and it’s much more straightforward, it allows people to spend money in whichever way they choose by retaining the incentives of having a very, very high energy bill.

“So no one should lose out but people who want to spend that money on something else, such as food which is also going to get more expensive, have the option of doing so while holding down their overall energy demand.”

One solution recently mooted by Ovo Energy is freezing the cap but limiting 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.

Hardy said: “There’s a strong correlation between how much you earn and how much energy you use…if you subsidise the first number of units, then it is quite targeted. What you must do in any scheme like that is also work out who might not earn very much money, but has to use a lot of energy because of medical dependencies and that kind of thing and give extra support. But you can target that quite accurately.

“That also gives a really good incentive that once you get to the end of your first cheap 1000 units or something like that, then you’ve got an incentive as a consumer to try and not to consume too much more. That also gives a signal to keep energy demand down.”

Despite this being his preferred approach, Hardy acknowledged that it is “complicated” and would not be possible to implement before 1 October. He too stressed the urgency of introducing support.

He added: “What I would do is basically whatever the least frictional way of getting support to people who need it is now, and put in place a way of making it more distributionally right soon, so you can get it in place by April.

“So, I think that’s what we need to do. Or if you’re going to do just the blanket thing and hold it for 18 months then you’ve got to have that communications campaign that says, ‘please help us this winter’.”

Watson however said he did not think the freeze would have as big an impact on consumer behaviour.

He added: “I don’t think people will be incentivised to increase their energy usage, it’s just that they won’t be incentivised to reduce their energy use as much as they would have been if prices had doubled.

“National Grid have published forecasts which show that based on forecast demand and supply this winter, we will be okay. I don’t have any concerns that any price freeze will exacerbate supply concerns.

“However, I do think there is an argument to say that alongside any measure from the government, whatever form that takes, we also need to look at the demand side. For example, coming forward with policies that encourage energy efficiency deployment for homes and businesses across the country, just as the Climate Change Committee has been recommending.”

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