Energy bills will remain high this winter and well above normal levels, despite market watchdog Ofgem confirming a minor reduction in the price cap.
The energy price cap has been slashed from £2,074 per year to £1,923 in the latest update from Ofgem, a seven per cent quarter-on-quarter decline.
However, this is well above pre-crisis conventions of £1,000-£1,200 per year before rebounding post-pandemic demand saw the collapse of 30 suppliers and record gas prices caused energy bills to climb to all-time highs.
Jonathan Brearley, Ofgem chief executive, welcomed the latest fall in price cap but recognised people are still struggling with the wider cost of living challenges.
He was not able to “offer any certainty that things will ease this winter,” and called on suppliers to support customers now that profits were returning to the market.
“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,” he said.
While £1,925 per year is below the monster peak of £4,279 per year the price cap hit in January – customers will no longer have the support of subsidy packages from the government.
These packages constrained bills to £2,500 per year for average use for customers, while also shielding businesses from the brunt of high wholesale costs.
This means households will be going without support with energy bills 50 per cent higher than conventional market windows during the coldest months of the year when demand will be at its peak.
Adam Scorer, chief executive of anti-fuel poverty charity National Energy Action urged the government to offer more support to customers.
“The government can still act – by directly reducing energy bills via targeted energy discounts or a more targeted Energy Price Guarantee for low-income and vulnerable households. It knows how to do it. It has millions of pounds unspent from previous schemes. It is aware that failing to act will consign millions to another winter of despair and suffering,” he said.
Ed Miliband, Labour’s shadow energy and net zero secretary, criticised the government for failing to ramp up renewable energy generation to ease demand concerns.
He argued the government has “learnt no lessons from this crisis.”
The MP said: “They continue to side with the oil and gas companies making record profits over hardworking British families, with their refusal to fix the gaping loopholes in the windfall tax or make the sprint we need for clean power, keeping the onshore wind ban and failing to insulate homes.”
Cornwall Insight: High energy bills here to stay
Earlier this week, Cornwall Insight’s principal consultant Craig Lowrey told City A.M. he expected energy bills to remain above normal levels until the end of the decade.
“We have modelled the cap out until the end of the decade and those numbers indicate – based upon where the wholesale markets is – we don’t see household energy bills returning to the levels we saw in 2021-22 this decade,” he said.
This will be seen in future price cap updates, with Cornwall Insight not predicting the cap will decline significantly further next year, meaning customer bills will remain historically elevated deep into 2024.
The latest price cap update has initiated the next chapter in a protracted industry row over the role of the price cap in protecting customer bills.
Simon Oscroft, co-founder of So Energy argued that Ofgem’s method for establishing the price was loading additional costs from the year on to suppliers – making it harder to price below the cap and offer customers cheaper deals.
He said: “This is another reason why the price cap is no longer fit for propose. Suppliers, consumer groups, and now even Ofgem’s own chief executive recognise that it is doing more harm than good. In its place we need short term targeted support this winter, but also a more permanent replacement in the form of ongoing targeted support for those customers most in need.”
This follows Brearley suggesting that the price cap could be in need of reform earlier this month.
In an interview with The Guardian, he urged minister to consider whether the “very broad and crude” price cap is still fit for purpose following the domestic energy crisis, which saw 30 suppliers collapse.
Greg Jackson, founder of Octopus Energy, has once again argued in favour of the price cap – which he considers the “single most effective policy to improve energy.”
He said: “Initially, it drove efficiency programmes because companies could no longer pass on bloated costs to consumers. Then it cushioned the impact of the energy crisis, buying crucial time for the government to implement support programmes.
“It’s now forcing energy companies to pass on falling wholesales costs rather than pocketing profits. It protected customers – especially older and more vulnerable ones – from the loyalty penalty, and helped bring an end to the wild west of cowboy companies who sold at unsustainable prices leaving everyone to pick up the tab when they inevitably failed.”
The new price cap will kick in from the fourth quarter of 2023.