UK energy bills to jump £693 a year from April

Ofgem confirms rising price cap will hit 22mn customers following record surge in global gas prices

UK customers will see their energy bills jump by £693 to £1,971 per year and prepayment customers will see an increase of £708 from £1,309 to £2,017 from April 1, Ofgem confirmed today.

The rising energy price cap will impact 22mn customers and the increase is driven by a record rise in global gas prices over the last six months, with wholesale prices quadrupling in the last year.

It will affect default tariff customers who haven’t switched to a fixed deal and those who remain with their new supplier after their previous supplier exited the market. The price cap is updated twice a year and tracks wholesale energy and other costs.

Ofgem said the move “stops energy companies from making excessive profits, ensuring customers pay no more than a fair price for their energy” – on the same day that Shell announced Q4 2021 adjusted earnings of $6.4bn.

The price cap allows energy companies to pass on all reasonable costs to customers, including increases in the cost of buying gas, Ofgem claims. Since the price cap was last updated in August, the current level does not reflect the unprecedented record rise in gas prices which has since taken place.

Over the last year, 29 energy companies have gone out of business or been put in special administration in the wake of soaring global gas prices, affecting around 4.3mn domestic customers.

Jonathan Brearley, chief executive of Ofgem, said: “We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.

“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas. 

“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”

Ofgem will tomorrow announce further measures to help the energy market weather future volatility by increasing financial resilience and have the flexibility to respond so that risks are not inappropriately passed on to consumers. This follows measures announced in December.

The further measures include enabling Ofgem to update the price cap more frequently than once every 6 months in exceptional circumstances to ensure that it still reflects the true cost of supplying energy.

Chancellor Rishi Sunak is expected to announce a two-pronged approach to counter the price cap, introducing a £9bn package of loans –  equating to a £200 discount per household – which energy firms would recoup over five years, and council tax rebates (£150 per household in bands A to D), which would be funded by government grants.

Burden should fall on consumers and providers

Anita Dougall, CEO and Founding Partner at Sagacity, said the price cap raise will ring alarm bells for many UK households with families’ budgets already stretched thinner than ever as the cost-of-living crisis escalates.

National Energy Action warns this price hike could send a further two million people into fuel poverty this year, bringing the total to roughly 6 million – that’s 10% of the UK population,” she said. “Energy is a human right, and all energy companies have tariffs in place to support vulnerable customers. Yet, many people are unaware of this help and may be eligible for financial assistance without knowing it. We advise people to contact their energy companies to get information on support, such as social tariffs, if they are struggling.”

Equally, the burden shouldn’t fall solely on consumers, she added, saying it’s more important than ever for energy companies to proactively identify vulnerable customers by gaining a clearer understanding of who they are supplying and whether they need assistance.

“For example, providers could use third-party data to look for evidence of financial support, such as receiving benefits payments, pension credits or a lack of National Insurance contributions, which points to a lack of employment,” she said. “They can then ensure these vulnerable customers get additional support and, where possible, are put on social tariffs so they can afford to heat their homes. As prices continue rising, providers must also share advice on how customers can reduce their energy consumption, making bills more affordable.”

It’s not only consumers who are voicing concerns. 

Industries in North West England fear, without intervention, rising energy prices could hit British manufacturing and lead to closures or reductions in production of critical services and products. Four members of Net Zero North West (NZNW) are facing a collective energy bill of up to £1bn in 2022 – a projected increase of around 65% since 2020.

Carl Ennis, Chairman of Net Zero North West and CEO, Siemens GB&I, said rocketing prices hit energy-intensive industries hard, with many manufacturing critical products on which the UK relies. Just Net Zero North West members alone are facing a projected £1 billion energy bill, a staggering amount when you also consider inflation is also impacting costs across the board for businesses too.

“We need a net zero strategy that addresses the pressing need to support industries to decarbonise as well as secure our energy supplies. The North West has all the ingredients to underpin a long term, resilient net zero energy system in the UK with a diverse mix of wind, biomass, tidal, solar, nuclear and hydrogen. We have highly skilled industries that are ready to invest in the technologies to drive low carbon products and growth.”

Dr Jon Hiscock, CEO of Fundamentals, said an intelligent approach to energy management can reduce costs. 

“Using the assets that we already have at our disposal will be pivotal in softening the impact of soaring energy prices,” he said. “For example, data from smart meter investments can be used to determine the most efficient voltage to supply on the network at a moment in time and automatically adjust it. This can reduce energy consumption, ultimately saving households money while tackling carbon emissions. 

“Inevitably, maintaining electricity supply and meeting net-zero targets will drive up prices. However, intelligently managing performance of the grid will recoup some of these costs and allow savings to be passed back to UK households feeling the pinch.” 

Professor Karen Turner, the University of Strathclyde’s Centre for Energy (CEP) Policy’s Director, said while the Government has announced measures to soften and smooth the impacts of rising energy bills, more support will undoubtedly be required particularly for pensioners and low-income households.

“Moreover, innovative and coordinated policy action will be required if the current spike in energy costs becomes more sustained through a combination of persistent supply challenges and the need to dramatically reduce emissions, where gas is increasingly becoming the global ‘transition fuel’ of choice,” she said.

“Here the economic performance of our transitioning economy gains increasing importance. Investment and action to deliver productivity and efficiency gains are more controllable from within the UK and will be crucial, alongside innovative approaches to things like energy storage, if cost and price rises are to be limited and mitigated for people and businesses.”

Dan Brooke, CEO of Smart Energy GB, said any support is welcome at this difficult time and the Government measures will hopefully help soften the immediate impact of price rises many people face. 

“Anyone worried about paying their energy bill should not suffer in silence, but ask for help,” he said. “Energy suppliers can offer support and organisations like Citizens Advice have information on getting financial help, including what benefits and grants there are. A smart meter can help you better understand your energy use and how to prepare for and manage your costs. This situation also highlights the need to end our reliance on gas for heating our homes and move instead to a cleaner and smarter energy system, which smart meters help enable.”

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