Bills set to 'skyrocket', despite fall in energy price cap

Bills set to 'skyrocket', despite fall in energy price
Bills set to 'skyrocket', despite fall in energy price cap

Ofgem confirms underlying energy price cap it to fall by nearly £1,000, but analysts warn scaling back of government support means domestic bills are still set to rise again

Ofgem has today confirmed the energy price cap for the next quarter is to fall by nearly £1,000 to £3,280 for an average dual fuel household paying by direct debit, following sharp reductions in wholesale gas prices.

But analysts warned the cut will come as cold comfort to many households given the price cap remains above the level set by the government's Energy Price Guarantee (EPG) support scheme. As such millions of households can expect to see their bills rise from April if the government sticks with its current plan to scale back the level of energy bill support on offer.

Fuel poverty and environmental campaigners responded this morning by again calling on the government to ditch its plans to curtail its support package from April and instead ramp up investment in energy efficiency programmes that could help reduce billpayers exposure to volatile fossil gas markets.

Ofgem this morning confirmed its £3,280 figure indicates how much consumers on energy suppliers' basic tariffs would pay if the government's EPG were not in place. But given the government has set the EPG at £3,000 for a typical bill from April, consumers will not pay the full level of the energy price cap.

However, the sharp reduction in the price cap means the Treasury is likely to pay out billions of pounds less through the EPG than it had originally anticipated.

Ofgem also predicted that if the recent reductions in wholesale gas prices persist then by the summer the prices paid by consumers "will drop for the first time since the global gas crisis took hold more than 18 months ago".

However, such projections are at risk from further shocks to global energy markets and industry insiders fear gas prices could spike again going into next winter. Moreover, bills are still expected to stay at levels that are more than double that seen 18 months ago.

"Although wholesale prices have fallen, the price cap has not yet fallen below the planned level of the Energy Price Guarantee," said Ofgem CEO Jonathan Brearley. "This means, that on current policy, bills will rise again in April. I know that, for many households this news will be deeply concerning.

"However, today's announcement reflects the fundamental shift in the cost of wholesale energy for the first time since the gas crisis began, and while it won't make an immediate difference to consumers, it's a sign that some of the immense pressure we've seen in the energy markets over the last 18 months may be starting to ease. If the reduction in wholesale prices we're currently seeing continues, the signs are positive that the price cap will fall again in the summer, potentially bringing bills significantly lower. However, prices are unlikely to fall back to the level we saw before the energy crisis. Even with the extensive package of government support that is currently in place, this is a very tough time for many households across Britain."

He added that households that are struggling to pay their bills should contact their supplier to make sure they are getting all the help and support they are entitled to. "We also think that, with bills continuing to be so high, there is a case for examining with urgency the feasibility of a social tariff for customers in the most vulnerable situations," he said.

Social tariffs would see households provided with a set amount of energy to cover essentials at an ultra-low cost rate or even for free. Higher tariffs would then charged for consumption over the agreed cap.

The proposal also enjoys some support among green groups, who argue it could help to curb emissions, incentivise energy efficiency improvements, and integrate with time of use tariffs that encourage people to reduce demand at peak times.

Dr Craig Lowrey, principal consultant at influential analyst firm Cornwall Insight, stressed that most households were still likely to see their bills rise from April.

"With consumers currently shielded from price cap rates by the government's EPG, it is not the falling cap that households should be concerned with, but the rising rates of the government scheme," he said. "If the government goes ahead with its proposed plans to raise the EPG limit from an average £2,500 to £3,000 a year from April, far from falling, typical consumers could see their bills skyrocket by £500. The government will be saving £2.5bn by raising the EPG, but this will come at a cost to households. 

"While the EPG will provide a small saving from today's announced price cap, the proposed increase in costs will still be difficult for many consumers who were relying on the scheme to safeguard their finances from unpredictable market trends. Instead, they will now be faced with the daunting prospect of having to pay significantly more for their utilities from April. In addition, households will also be losing the £400 Energy Bills Support Scheme(EBSS) payment which has also helped shield them from the immediate impact of rising energy costs on their household budgets."

As such, the government has today faced fresh calls for it to use next month's Budget to reverse its plan to cut the level of support through the EPG and bring forward plans to invest £6bn in energy efficiency programmes from 2025.

"Millions of cash-strapped households are facing a very steep cliff edge after being dealt a devastating double blow of yet another bill price hike just as financial support is stripped away," said Greenpeace UK's climate campaigner, Georgia Whitaker. "But it is the government's abject failure to deliver a proper plan, programme or funding to insulate homes and decarbonise heating that will push them all over the edge.

"Ministers seem to have abandoned all plans to tackle fuel poverty along with the millions plunged into it. But the solutions to the cost-of-living and energy crisis are the same as those needed to tackle the climate crisis. Struggling households will be left in freefall unless the government delivers a properly funded green homes scheme that reduces energy usage and keeps bills down for good."

Her comments were echoed by Connor Schwartz, warm homes campaigner at Friends of the Earth, who said: "though the new Ofgem price cap won't have an immediate impact on people's bills, it's a stark reminder that energy remains incredibly unaffordable and that we are still at the whim of volatile global gas markets. Clearly, there is an ongoing need for action from the government to support people through this crisis and to prevent the next one. 

"While some predictions say energy bills might finally start to drop later in the year, they'll still be double what they were a year ago. This is hardly reassuring to those who are barely getting by. And even if the government does extend its energy price guarantee beyond April, which it should, it's only a sticking-plaster solution that fails to address the root causes of the energy crisis. The government must not delay any further in rolling out a street-by-street insulation programme. Not only is this the best solution to lower bills permanently and help those struggling most, it's also badly needed for the sake of our planet."  

The government insisted that it would continue to help households with their energy bills. "We know this is a difficult time for families, which is why the Government has covered around half of the typical household's energy bill this winter, and by the end of June the Energy Price Guarantee will have saved a typical household in Great Britain around £1,000 since it began in October," a spokesperson said. "In the meantime, we're committed to helping people with rising costs by reducing inflation and growing the economy.  

"The cost of energy has already been falling and we expect this to drop further over the coming months, which we fully expect suppliers to pass onto their customers." 

The update from Ofgem comes as the government continues to face similar calls from business groups for Ministers to rethink plans to scale back support for business customers from April. Trade bodies in multiple industries have warned the scaling back of support could result in some businesses facing bills that double from April, potentially leading to bankruptcies in some sectors.

* This article was originally published here