Fuel poverty campaigners on Thursday hit out at a decision to pass on rises in wholesale gas and electricity prices to British households much faster, after Ofgem confirmed the energy price cap would be altered every three months instead of twice a year.
The energy regulator insisted the changes were required to prevent another large-scale crisis in the energy retail sector following the collapse of more than 30 suppliers since January 2021 amid surging wholesale prices. Consumers have been paying for the costs of rescuing customers of failed suppliers via their energy bills.
But the decision has deeply angered fuel poverty campaigners, who argue that the current system — whereby the cap is altered only twice a year on April 1 and October 1 — protected households from the worst of the wholesale price increases over the critical winter period when gas usage soars as consumers fire up their heating.
The regulator, strongly criticized for allowing too many poorly capitalized companies to enter the market in recent years, has been accused of siding with energy groups rather than consumers.
Ofgem also confirmed on Thursday other changes to the methodology of the price cap — which dictates bills for 24mn households — that it said would add about £60 to the average bill between October and December. They included an adjustment to ensure companies could recover the full costs of buying energy for the coming winter at very high prices.
Simon Francis, co-ordinator for the End Fuel Poverty Coalition, branded the move to quarterly cap changes “simply inhumane” and claimed it would force more people into fuel poverty in the middle of winter.
Caroline Abrahams, charity director at Age UK, called the decision a “hammer blow” that “poses an enormous threat to the health and wellbeing of vulnerable older households across Britain”.
Analysts have warned that the price cap, which dictates a maximum price suppliers can charge per unit of energy and limits their profit margins, could rise 70 percent in October to almost £3,360 a year per household on average, before hitting more than £3,600 in January.
Ofgem will confirm October’s price changes on August 26 but energy companies and consumer groups have already called on the government to provide more support for cash-strapped households.
Jonathan Brearley, Ofgem chief executive, acknowledged the situation was “deeply worrying for many people” but insisted the changes “ensure the price cap does its job, making sure customers are only paying the real cost of their energy, but also that it can adapt to the current volatile market”.
The regulator insisted the current twice-yearly system “simply delays the inevitable and means bigger.” [price] changes twice a year instead of smaller changes four times a year”. It stressed the changes would also lead to decreases in wholesale prices being passed on to households faster.
Businesses are not covered by the price cap and tend to negotiate bespoke fixed-term contracts with suppliers. But analysts have warned that many companies’ bills could increase fivefold from October, when many commercial energy contracts expire.
The Department for Business, Energy and Industrial Strategy said it recognized “the pressures people are facing with rising costs” and that it was already providing assistance, including a £400 discount on all households’ energy bills this winter.
Additional reporting by Jasmine Cameron-Chileshe in London