Wed. Dec 1st, 2021

A price cap protecting customers from a predicted sharp rise in energy prices is not fit for purpose, suppliers have said.

Soaring gas prices have seen nine domestic energy firms go out of business, forcing 1.7 million customers to find new energy providers at higher rates.

Energy firms have warned that suppliers going bust will lead to households being hit with higher energy costs. They also labelled the energy price cap “too good to be true.” Paul Richards, the chief executive of Together Energy, which he said was currently recording losses, told BBC Radio 4’s Today programme: “The price cap as a mechanism is not fit for industry, nor is it fit for customers.”

“When the converse situation arises and the wholesale price starts to drop sharply, the price that will be passed through to customers in April might feel like a very, very poor deal, whereas at the moment the price cap feels like a price that is too good to be true,” he added.

Mr Richards said while the energy cap protected customers in the short term, there was between £1 billion and £3 billion in costs as a result of failed suppliers that would be placed upon businesses and households.

Energy prices have soared significantly for households


Energy regulator Ofgem has already echoed this, warning that customers will see “significant rises” in energy prices in the upcoming Spring, despite protection from the energy price cap. Jonathan Brearley, the chief executive of Ofgem, told BBC Radio “looking at the costs that are in the system, we are expecting a significant rise in April.”

Gas prices are already at record highs as economies around the world recover from the pandemic. On Thursday wholesale gas prices were ten times higher than in October last year. Some analysts forecast that bills could rise by £400 or more next year if wholesale prices continue to increase.

Ofgem can change the energy cap twice a year. It raised the cap by 12-13 per cent to £1,277 a year from 1 October, following raising it in April due to rising wholesale costs.

The British Chambers of Commerce (BCC) has also called on an energy price cap to be introduced for SMEs also struggling with rising gas prices. However, David Dalton, chief executive of British Glass, told BBC News that a price cap for SMEs would help but was likely “too little too late.”

Average Annual Energy Bills to reach £2,000, ministers warned

Energy price cap warnings come as the government is set to push ahead with gas bill levy plans to fund low-carbon heating within the next two weeks, The Times has reported.

The new strategy, which will reportedly be published before the start of Cop26 climate conference in Glasgow next month involves a new carbon pricing scheme that will raise the price of gas bills even higher.

The government will commit to cutting the price of electricity – which is significantly higher than gas – by removing green levies on electricity bills over the next decade and placing new charges on gas bills in a move seeking to end “price distortions.”

One government source told The Times that the plans were “madness” and that Downing Street was failing to appreciate “the reality of the problem we’re facing with energy prices”. The source said: “There is still a sense that we just ride it out and it’s better in a few months’ time. But it’s very clear that it’s going to get worse before it gets better.”

A spokesman for the Department for Business, Energy and Industrial Strategy said: “We’ll set out our upcoming heat and buildings strategy shortly. No decisions have been made.”

Ministers have been warned that average annual energy bills could reach £2,000 next year if wholesale prices continue to rise. The price of natural gas stands at 213 pence per therm, which is up 461 per cent compared to last year.

Companies ‘Days Away’ from Halting Production

Leaders of the UK’s energy-intensive manufacturers such as steel, glass, ceramics and paper, have warned the government that unless something is done about soaring wholesale gas prices they could be forced to shut down production.

Factory production could be forced to halt

(PA Wire)

Despite holding talks with business secretary Kwasi Kwarteng on Friday, industry leaders have said no immediate solutions or commitments were reached.

UK Steel boss Gareth Stace told Channel 4 News: “What we’re asking Kwasi Kwarteng today to do on wholesale prices is just to step in, to alleviate that pressure in the short term, just like in, say, Portugal or Italy. Their governments are already investing many billions of euros, to help their industries and the UK government has yet done nothing.”

“We can’t wait until Christmas and beyond. Or even a few weeks. We need action now, it needs to be swift, decisive action,” Mr Stace said.

“At the moment, there’s an energy crisis,” Stace added. “If government does nothing, tomorrow there’ll be a steel crisis.”

Dave Dalton of the British Glass said some companies were days away from halting production.

Andrew Large, director-general at the Confederation of Paper Industries also said it was clear there were “serious risks” of factory stoppages because of the price of gas being too high to bear. He warned that this would create a knock on effect through the supply chain into consumer retail.

Conservative MPs have joined forces with Labour in calls for the government to provide more support in the wholesale gas crisis. Andrew Bridgen, the Conservative MP for North West Leicestershire and Conservative MP Miriam Coates both backed the government providing short term support for energy-intensive industries. Jo Gideon, Conservative MP for Stoke-on-Trent Central, told the BBC that “potters, brickmakers, and material scientists” also required government support.


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Wizadclick | WAC MAG 2021