Energy chiefs fear 40% of Britons could fall into energy poverty during ‘really horrific winter’ |  Energy industry

Energy chiefs fear 40% of Britons could fall into energy poverty during ‘really horrific winter’ | Energy industry

Up to four in ten people in Britain could fall into energy poverty when the price cap rises again this autumn, energy bosses have told MPs as they call for increased government support for vulnerable households facing a “really horrible” winter.

Michael Lewis, chief executive of E.ON UK, said between 30% and 40% of Britons could fall into energy poverty from October, when sector regulator Ofgem is expected to impose the limit again annual rates.

“We expect a serious impact on customers’ ability to pay,” he told MPs on Parliament’s trade, energy and industrial strategy select committee, adding that he expected customer debts increase by 50% or £800 million.

How does the energy price cap work?

The cap, one of the biggest shake-ups of the energy market since privatisation, came into effect on 1 January 2019 for 11m households on default tariffs, known as standard variable tariffs (SVTs). The government told the energy regulator, Ofgem, to set the cap because ministers argued people on SVTs were being ripped off by big energy firms capitalising on consumer loyalty. The limit is not an absolute one but the maximum suppliers can charge per unit of energy and for a standing charge. There is a separate cap for 4m homes on prepayment meters.

So why are prices moving higher?

In short: if energy market prices climb higher, the cap must move higher, too. The cap is designed to reflect the costs energy suppliers face, the largest of which is sourcing gas and electricity from the wholesale markets. In recent months energy markets have reached historic highs because of tight global gas supplies, causing one of the steepest energy price increases on record. Market prices have continued to climb since the new cap was announced, meaning another rise is likely in April once the regulator has revised its cost assessments.

Is there any way to avoid the increase?

In the past, households could save hundreds of pounds a year by spending a few minutes on one of the many comparison sites, or by signing up to an auto-switching service, and moving to a cheaper tariff, either with their existing supplier or a rival one. But the recent market surge means even fixed tariffs, which are not covered by the cap, are more expensive than the energy price cap itself. The best bet to keep bills in check is to use less energy: if you can afford to invest in insulation this can make a major difference to how much energy you need. Lowering the thermostat by a couple of degrees may also be an option for some. 

When will bills begin to fall again?

It is too soon to say. Energy market experts believe gas and electricity wholesale prices will remain high through the winter and into 2022 because energy demand is recovering rapidly after the worst of the Covid-19 crisis. Some believe households may face rising energy bills for another 18 months. In addition to market prices, the regulator includes the cost of using energy networks and paying for government policies – which are also expected to keep rising.
Jillian Ambrose

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What is the UK Energy Price Cap and how does it work?

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How does the energy price cap work?

The cap, one of the biggest energy market shake-ups since privatization, came into effect on January 1, 2019 for 11 million households on default tariffs, called standard variable tariffs (SVT). The government asked the energy regulator, Ofgem, to set the cap because ministers argued that SVT users were being ripped off by big energy companies who capitalized on consumer loyalty. The limit is not absolute but the maximum that suppliers can charge per unit of energy and for a fixed charge. There is a separate house cap of 4m on coin-operated meters.

So why are prices rising?

In short: if market prices for energy rise, the ceiling must also rise. The cap is designed to reflect the costs faced by energy suppliers, the most important of which is the supply of gas and electricity to wholesale markets. In recent months, energy markets have reached historic highs due to global gas shortages, prompting one of the largest energy price increases on record. Market prices have continued to climb since the new cap was announced, meaning another hike is likely in April once the regulator revises its cost assessments.

Is there a way to avoid the increase?

In the past, households could save hundreds of euros a year by spending a few minutes on one of the many comparison sites, or by subscribing to an auto-switching service, and switching to a cheaper rate, either with their existing supplier or with a rival. But the recent market surge means that even fixed tariffs, which are not covered by the cap, are more expensive than the energy price cap itself. The best bet for keeping your bills under control is to use less energy: if you can afford to invest in insulation, it can make a big difference in the amount of energy you need. Lowering the thermostat a few degrees may also be an option for some.

When will bills start falling again?

It is too early to tell. Energy market experts believe that wholesale gas and electricity prices will remain high through the winter and into 2022 as energy demand recovers rapidly from the worst of the weather. Covid-19 crisis. Some believe households could face rising energy bills for another 18 months. In addition to market prices, the regulator includes the cost of using energy networks and paying for government policies – which are also expected to continue to rise.
Jillian Ambroise

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He said that with more people falling into energy poverty, this would lead to a significant increase in bad debts.

Customers have called energy suppliers to express their concern about the dramatic increase in their bills.

ScottishPower alone has received 8,000 calls from customers concerned about their ability to pay, its chief executive, Keith Anderson, told MPs.

He said he was ‘massively concerned’ about people facing rising bills who ‘will be really, really struggling’ and called for the introduction of a £1,000 deficit fund or tariff social for vulnerable clients.

The fund would take £1,000 from the bills of the country’s poorest people in October and the government or consumers would then pay this back over 10 years, he suggested.

The energy regulator lifted the price cap on bills earlier this month, taking the average household dual-fuel tariff from £1,278 to £1,971. This is set to rise again in October, with some experts expecting the price cap to hit £2,600.

In October it’s going to get awful, really awful,” Anderson said. “It’s now reached a stage where its size and scale is beyond what I can handle, beyond what I think this industry can handle. I think there needs to be a massive change, a significant change in the policy and the government’s approach to it.

The EDF Managing director Simone Rossi said he had seen a 40% increase in calls from customers worried about their debt.

“We are concerned about what is ahead of us,” he said. “Unfortunately, prepaid customers are the first to be affected. We are now seeing bills being higher for longer, so I would expect the government to quickly reassess to see what is possible.

Earlier, Ofgem chief executive Jonathan Brearley said increases in fuel bills would be investigated over concerns suppliers were unfairly charging households.

Gas prices, in particular, have surged in recent months, prompting almost all household energy suppliers to raise their prices to the maximum allowed. However, some consumer groups have argued that energy companies have raised prices more than necessary to strengthen their own balance sheets at the expense of customers.

Brearley told BBC Radio 4: “We will be looking closely at these direct debits. We’re going to make sure they’re raised fairly – clearly prices have gone up – and if they haven’t been, we’ll take action and make sure the companies put things right.

“You shouldn’t take more than you need. You should not build up a credit balance.

He insisted that price increases must be introduced “in a reasonable and fair manner” and not for “other reasons outside the interest of the customer”.

Energy companies should set aside customers’ money so that it is only used to pay for their gas and electricity, he said.

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