A report from the Business, Energy and Industrial Strategy Committee (BEIS) on Energy pricing and the future of the energy market, published today (26 July), has laid out a number of recommendations on how Ofgem and the government could lower consumer energy bills and reduce instability in the energy market.
Using Default Tariff Cap (price cap) predictions from Cornwall Insight,1 the report outlined its concerns over the implementation of Ofgem’s major package of regulatory reform, alongside examining the future of the cap, and the ability of the government’s support packages to tackle rising fuel poverty now that predictions for household energy costs had risen.
Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:
“The energy market is an increasingly volatile place, with insecure energy supplies to the EU, and further afield, directly impacting consumer bills in the UK, as they rise to unseen levels.
“While the government’s package of support for domestic consumers will put a small dent into Winter energy bills, the funding was announced when Ofgem were forecasting the typical households Default Tariff Cap to be £2,800 a year, over £500 lower than our current predictions. In light of the extra pressure households are forecast to face, we support the report’s call for the funding to be reviewed, with money targeted at the vulnerable groups most likely to be impacted by fuel poverty. The government must also recognise that increasing energy bills are not only a problem for the October price cap review, and we would encourage them to implement a package of support for Spring 2023, without which many more households are likely to be heavily impacted by the rising costs of energy.
“The committee is right to ask Ofgem for a “more robust impact analysis of its proposals for suppliers to ringfence customer credit balances and be explicit about the implications on energy bills and competition, and considers the cumulative impact of its reforms”. There will be a cost to the credit ringfencing proposals in particular that we believe will be disproportionate to their benefits, even after accounting for the costs of the supplier failures of recent years. Consumers will in effect be asked to pay every year a premium calculated on the assumption that all suppliers could fail at any time in the course of a year. These premiums could well end up in Ofgem’s tariff cap models, adding yet more costs to bills at a time when consumers can ill afford them.
“While a review of energy bill support for consumers is essential, it is ultimately not a sustainable solution, as this level of funding cannot continue indefinitely. With consumer bills rising to unprecedented levels, the question must be asked, if the price cap is not delivering affordable costs for domestic consumers, should it be kept in place? Options outlined in the report, including the reintroduction of a social cap, assessing standing charges for those on prepayment packages and the moving of legacy policy costs to taxation, may be more effective and efficient solutions to the energy bill crisis.
“The review of customers’ payments and support are essential if the government want to address fuel poverty in the short-term. In the medium to longer term, we need to see a continued commitment from the government to reduce our reliance on imported energy, through increasing renewables and greater financing in demand side policies, including the report’s suggested insulation investment. Only then will we see a secure, and affordable energy market, which delivers for everybody. We also cannot forget the need to minimise unintended consequences from well-intentioned but ill thought through regulatory changes.”
- Cornwall Insight’s latest forecast for the Winter 2022 Default Tariff Cap is £3,284 a year for a typical user. This was calculated on 21 July 2022.
Notes to Editors
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About the Cornwall Insight Group
Cornwall Insight is the pre-eminent provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British, and Irish energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes and policy frameworks, and a practical understanding of how markets function