Energy bills could rise by 50% amid ‘national crisis’ of soaring UK prices: Industry calls on government to intervene, with situation ‘looking pretty serious for the spring’
Energy bills could rise as much as 50% in the spring as the UK faces a “national crisis” over soaring wholesale gas and electricity prices, the energy industry has warned.
The trade body Energy UK has called on the government to intervene to help cut the cost of bills as soaring wholesale prices drive dozens of energy companies out of business.
“Domestic energy prices are going to go up 45% to 50% in the spring,” warned Emma Pinchbeck, the chief executive of Energy UK, speaking on BBC Radio 4’s Today programme on Thursday.
“It is looking pretty serious for the spring. This is a system-wide issue now. We are asking for the Treasury in the UK to intervene as others have [in Europe],” Pinchbeck said.
While wholesale prices continue to climb steeply, the UK’s price cap on energy bills stops companies from immediately passing those costs on to their customers. Since 1 October, the price cap, set by the industry regulator, Ofgem, has been set at a record £1,277. It is due to change on 1 April when Ofgem is set to raise the cap significantly, which will in turn result in consumers’ bills rising significantly.
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Pinchbeck said that only about a fifth of a consumers’ energy bill in the UK is in the control of suppliers. The government sets other costs such as VAT and green energy levies, which could be reduced to help domestic customers.
“A significant proportion of the bill is policy costs,” she said. “Many other governments across Europe have reduced taxes or VAT on bills. In the UK that would save around £90 per customer. There are also policy costs on energy bills that government was consulting on removing, on electricity bills primarily, they could bring that forward. That saves about £190 per customer.”
Ofgem gives £1.83bn to energy firms that took on collapsed rivals’ customers: Figure covers buying energy on wholesale markets and costs will be passed on to household bills
Energy firms that took on millions of customers from rivals that collapsed amid soaring gas prices have been granted an initial £1.83bn compensation by the regulator to help them absorb extra costs.
The sum, which relates to the wave of failures among household energy suppliers during 2021, is likely to rise and will ultimately be funded by anyone who pays gas and electricity bills.
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But agreeing to serve so many extra customers meant the suppliers of last resort had to buy more energy on wholesale markets. They can charge that cost – £1.83bn, according to Ofgem disclosures – to local gas and electricity distribution networks from April.
Those grid operators, in turn, will add the extra cost to what they charge suppliers for use of their systems. That means the money will eventually be added to household bills, which are already expected to soar next year to reflect the wider gas price surge.
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The £1.83bn approved by Ofgem covers buying energy on the wholesale markets but does not include other expenses such as staff and IT. These are yet to be calculated and will be added to the total later. The final bill related to energy supplier collapses could rise to £2.5bn, according to some estimates.
The largest single compensation payment of £681m went to Octopus Energy for taking on Avro Energy’s 580,000 customers, while British Gas was granted £361m for taking on half a million customers from several smaller firms. Shell Energy was awarded £362m.
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