Energy firms have broadly welcomed the announced support package for households this winter.
Prime Minister Liz Truss has unveiled a two-year freeze on energy bills at £2,500 per year, which will kick in at the beginning of October.
The Government will pay suppliers the difference between the new frozen rates and market wholesale costs, which will be funded through state borrowing.
Overall costs for the package, which will be combined with equivalent relief for businesses, are estimated in excess of £130bn.
This follows Ofgem’s announced 80 per cent hike in the price cap to £3,549 per year next month, with growing expectations it could potentially double next spring.
Chris O’Shea, chief executive of British Gas owner Centrica, recognised people were deeply worried about record hikes to their energy bills this winter.
He praised the Government’s intervention, suggesting that “extraordinary circumstances call for us to all think differently” and that the £130bn-plus package would bring “immediate relief to hard pressed households.”
O’Shea said: “We applaud the speed and scale of action. Alongside this support, we will continue to donate 10 per cent of British Gas energy supply profits to help thousands of vulnerable households for the duration of the crisis.’”
Rival Big Five firms also praised the latest measures, including both Scottish Power and Octopus Energy.
Keith Anderson, chief executive of ScottishPower, was the first energy boss to propose a price cap freeze during talks with the Government at Downing Street this summer,
He said: “This is decisive action from the Prime Minister and Chancellor and will offer relief for worried billpayers ahead of winter. There is no denying the scale of this crisis has struck fear in the heart of families across the UK and Liz Truss and her team have moved fast with a package of support that offers certainty for longer on energy prices.”
Greg Jackson, chief executive and founder of Octopus Energy added: “It’s great to see this major support for households and businesses. Companies and government are now working through the details and customers should sit tight and wait to hear from their energy supplier.”
The market watchdog Ofgem labelled the support as “significant” and suggested the intervention was inevitable.
An Ofgem spokesperson said: “It’s been clear to Ofgem and the government since we announced the new price cap that the new government would have to act urgently and decisively to support consumers and this package of support will be welcomed by millions across Britain.”
Wholesale costs have spiked to record highs following a Russian squeeze on gas supplies, with prices already elevated amid rebounding post-pandemic demand and mass carnage across the energy sector that has seen nearly 30 suppliers over the past 12 months.
Government must do more to cut energy demand
Alongside the support package, Truss announced a raft of measures intended to increase domestic energy supply.
This includes lifting the moratorium on fracking, new licensing for oil and gas exploration and a review of the UK’s 2050 Net Zero target to ensure it is “pro business and pro growth”.
However, the Government has been criticised for not including further explicit advise to reduce energy consumption amid fears of supply shortages – with price signals being watered down through the price cap freeze.
EON UK chief executive Michael Lewis praised Downing Street for matching the crisis with “speed and on a scale” to match the severity of the crisis.
However, he believed more needed to be to ease demand on supplies.
Lewis said: “I’m disappointed not to see a greater commitment to energy efficiency as a long-term solution to the current crisis, and as the foundation stone of that cleaner, greener future. The only way to insulate Britain from this kind of crisis in future is to improve our homes and dramatically reduce our fossil fuel use, and I will continue to urge the Government to do much more to deliver an energy efficiency transformation of our housing.”
This follows Good Energy boss Nigel Pocklington calling for more focus to be on reducing demand this winter, he told City A.M. more needed to be done to offer advice to households this winter.
This outlook was shared by Darren Jones, chair of the Business, Energy and Industrial Strategy (BEIS) Committee, Darren Jones.
He said: “While welcome, this is a temporary response to an urgent issue. If the Government is serious about tackling the energy crisis ministers will quickly follow through with announcements on home insulation – the permanent solution to reducing energy bills – and further expansion of renewable energy. “
He also called for more support through the benefits system for households that will still struggle to afford £2,500 per year energy bills.