UK urged to accelerate transition away from gas as Ofgem firms up new price cap
Ofgem’s energy price cap will dip below £2,000 for the first time since April 2022 when it is changed in October – but homes still face bills around 80% higher than pre-price-crisis levels.
The energy regulator confirmed the new price cap decisions on Friday (25 August). Its choices mean that the cap will be set at an annual level of £1,923 for a dual-fuel household based on the current typical consumption rates and wholesale prices.
This change will come into effect in October. The average home can expect to save £130 to £150 per quarter depending on their payment method.
Ofgem has confirmed that wholesale energy prices are decreasing, but has stated they remain far above pre-energy-crisis levels and that the market “remains volatile”.
The regulator is also consulting on ways to “permanently end the premium” placed on customers with pre-payment meters (PPM). PPM customers are currently being supported by the UK Government’s Energy Price Guarantee, but this will end in April 2024.
Ofgem boss Jonathan Brearly said: “There are signs that the financial outlook for suppliers is stabilising and reasonable profits are returning… this means there should be no excuses for suppliers not to be doing all they can to support their customers this winter, and to reinforce this we’ll be introducing a consumer code of conduct which we will look to have in place by winter.
“This code will ensure there are clear expectations of supplier behaviours especially for their most vulnerable consumers with whom suppliers should be reaching out proactively, with compassion and understanding. There are great examples of suppliers already doing this but I want to see this become the norm in such an essential sector that has such a big impact on people’s lives.”
The parent company of Britain’s largest energy provider, British Gas, posted record profits for the first half of this year in July, marking a year-on-year increase of 889%.
Centrica has committed £100m to support vulnerable customers through the price crisis. Support has included grants to small businesses and individual households, in the form of either cash or credit towards their bills.
Call for longer-term planning
While there is widespread relief that Ofgem’s price cap will be decreasing, key organisations in the UK’s green economy are urging the regulator to work with policymakers to do more to tackle the root causes of the price crisis. Ministers are being asked to reconsider additional interventions to make buildings more energy-efficient and to accelerate the transition away from natural gas in heating and in electricity generation.
Energy Saving Trust chief executive Mike Thornton said: “Energy prices are still high and we may see increases again this winter, so the message for government hasn’t changed. Addressing the root causes – not least our over-reliance on gas – to permanently lower energy prices is more important than ever.
“The onus isn’t on households, it’s on government to shift the emphasis towards reducing energy demand – how much energy people are using and when.”
Energy Saving Trust is advocating for a nationwide retrofitting programme that encompasses all homes, coupled with financial incentives and a ‘one-stop-shop’ for bespoke advice. The UK is running retrofit schemes for some homes and the public sector, but has stopped short of drawing up plans for all homes.
Thornton and his colleagues would also like to see Ofgem confirming a larger and longer-term plan to leverage flexibility from homes and businesses, enabling them to contribute to grid security using technologies such as electric cars and heating systems. They can also participate by timing their energy use for off-peak times.
The National Grid Electricity System Operator worked with suppliers last winter to pay 1.6 million homes and businesses for avoiding energy use during peak times. Ofgem is now looking at plans to extend and expand the Demand Flexibility Service. Recent research revealed that this could save whole-system electricity costs of £4.6bn in 2030.
Similar points have been raised by the Energy and Climate Intelligence Unit (ECIU). Their energy analyst Jess Ralston said: “The Government’s flagship insulation scheme has flatlined this year, so getting it back up and running could help people in time for this winter and fulfilling pledges to tighten energy efficiency regulations for private renters and lifting the ban on onshore wind could help in time for next winter.”
The ECIU is also advocating for a more rapid build-out of British renewable electricity generation to help displace gas-fired electricity generation.
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