Costs to compensate energy companies who take on customers from failed suppliers have resulted in an average increase in domestic electricity bills by £34.46 in 2022-23.
When a customer’s supplier fails, they are automatically appointed a new supplier through the Supplier of Last Resort (SoLR) process, with onboarding suppliers able to recover some costs for doing so. The costs are then passed on to the consumer through their electricity bills in Distribution Use of System (DUoS) charges. These additional costs have consequently increased this component of electricity bills by an average of 33.9% in 2022-23. With regions including London and Southern England seeing a hike of over 40%.
While distribution networks are usually required to provide 15 months’ notice to increase their charges, the sheer volume of energy suppliers going out of business, and the accumulation of costs associated, means Ofgem have granted special provision for the networks to update their charges for 2022-23 with just two months’ notice. This has resulted in a sudden and significant uplift in DUoS charges for domestic consumers and will provide an additional driver for high energy bills in the year ahead.
Figure 1 shows a comparison between the original and updated charges for a typical domestic user for each Distribution Network Operator (DNO) region in 2022-23.
Laura Woolsey, Senior Analyst at Cornwall Insight said:
“A combination of significant increases in the price of wholesale energy, combined with the Default Tariff Cap limiting the revenues that suppliers can recover from domestic customers, left thousands of consumers in 2021 seeing their supplier exit the market and larger energy companies taking on these consumers through the Supplier of Last Resort process. Although this option safeguards people’s energy supplies, it has come with significant costs.
“If we are to protect both consumers and companies in the energy market, we need to see more than short-term fixes, we need long-term reform. This includes seriously considering the future of the Default Tariff Cap, which is currently working as a barrier to the success of smaller energy firms and not safeguarding the cost of energy bills. Ultimately if more suppliers fail, consumers will be the ones left with the bill.”
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Notes to Editors
For more information, please contact: Verity Sinclair at v.sinclair@cornwall-insight.com
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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.
