Third-party charges (TPCs) on domestic household energy bills have jumped by 33% for gas and 9% for electricity in 2022-23, compared with 2021-22 prices, according to Cornwall Insight’s Third Party Charges Report.
The rise is driven predominantly by an increase in network charges due to the collection of unprecedented Last Resort Supplier Payments (LRSPs)1 from domestic consumers. The money collected through the payments is used to compensate energy companies who have taken on customers from failed suppliers, with 27 companies leaving the market in 2021.
Network charges, the second largest component on energy bills after wholesale costs, have jumped by an average 22%. LRSP payments alone have driven an uplift of £34.46 and £32.54 for typical domestic electricity and gas bills respectively for the year, with supplier failures in 2022 likely to result in more LRSP charges in future.
Energy efficiency costs on consumer bills are also rising by nearly a third (31%) from April 2022 following expansions to the Warm Homes Discount and Energy Company Obligation schemes2. These additional scheme costs will increase support for low-income and vulnerable households and be recovered from all domestic energy bills.
However, higher wholesale power prices do have the benefit of decreasing Contracts for Difference costs, which will offset some of the other rises. With Generators expected to make payments back to the Low Carbon Contract Company (LCCC) over the next year as wholesale prices fall significantly above project strike prices.
Figure 1: Movement in domestic electricity and gas TPCs between 2021-22 and 2022-23
Source: Cornwall Insight
Laura Woolsey, Senior Analyst at Cornwall Insight said:
“While volatile energy wholesale prices have grabbed the headlines for raising energy bills, it is important to acknowledge the part third party charges have had to play.
“Domestic consumers have been left footing the bill for the unprecedented number of supplier failures, a consequence, at least in part, of the Default Tariff Cap restricting the revenues suppliers could collect. With network costs increasing and the cap now passing through some of the recent price rises onto domestic customer bills, households are being hit from both sides.
“Expansion of the Warm Homes Discount and Energy Company Obligation schemes this year should provide some additional support for low income and vulnerable households with their energy costs. However, these additional expenses will ultimately be collected from wider bills. Rising Capacity Market costs amid increased security of supply concerns also highlight another element of energy bills that could be a source of growing pressure on consumers in future.
“Getting a grip on third party energy costs must be part of any strategy to control delivered energy costs. This is doubly true for business customers who, unlike domestic customers, have not been sheltered from rising energy costs by a price cap.”
- The Supplier of Last Resort process appoints a new supplier for customers of failed suppliers, with onboarding suppliers then able to recover some costs associated with doing so via approval from the regulator.
- The Warm Home Discount scheme will increase its annual budget to £475mn per year, from £350mn currently, in the years 2022-23 to 2025-26, while total costs for the Energy Company Obligation scheme will increase in value from £640mn to £1bn from 2022-23 onwards.
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.