Beleaguered energy secretary Kwasi Kwarteng won the support of Britain’s power bosses today, reassuring them that vulnerable consumers would be continue to be protected, as he warned that more suppliers are set to quit UK retailing.
Speaking at EnergyUK’s annual conference, the minister repeated his three principles to overcome Britain’s crisis, caused by spiralling wholesale costs of gas:
- No government bail-outs for failed suppliers
- Customers, particularly the most vulnerable, will have their supply safeguarded
- The UK energy market must remain competitive
More under-financed retailers would quit the supply business in coming months, Kwarteng predicted, but he vowed ‘there must be no public payouts for bad management’.
He said Britain must continue to press ahead in deploying more generation from renewables. In the medium term it would protect consumers from what the minister called ‘exorbitant spikes’ in prices.
EnergyUK’s chief executive Emma Pinchbeck indicated to BBC Radio at lunchtime her acceptance that the minister was doing all he could to combat the crisis.
She asked only that D-BEIS continue to monitor gas wholesale markets closely, and Ofgem should institute reforms so that this ‘unprecedented crisis’ should not happen again.
Ofgem’s price cap as implemented last month is already predicted to inflict a £ 100 per year rise this winter on up to 15 million home account holders. Business tariffs are not protected. The cap’s revision next April, based around current wholesale prices, is feared to extract a further £400 million from consumers’ wallets in 2022.
In a dramatic intervention this afternoon, the price cap’s architect John Penrose MP called for its radical overhaul.
Penrose, appointed by premier Johnson as his government’s competition czar, and husband of track-and-trace boss Dido Harding, argued that energy markets needed a ‘circuit-breaker’, suspending trades in times of unusual volatility such as the present.
Delivering the prestigious Beesley Lecture to economists, Penrose would say:
“The energy price cap was supposed to wipe out the ‘loyalty penalty’, where loyal customers on default tariffs were quietly charged miles more than people who switched. But it isn’t working.
“Since the cap was introduced, the loyalty penalty has hardly changed at all, so millions of families are still being ripped off at the same time as prices are spiking and energy firms are going bust. We’ve got the worst of both worlds.
“We should reform the cap so it stops loyal customers from being ripped off in the 99 months out of a hundred when the market is normal. But make sure it still protects us for the 1 month in a hundred when things aren’t normal, like now, when there’s an international price spike.
“The fix would be pretty simple. The Financial Conduct Authority is already introducing new rules to wipe out loyalty penalty ripoffs in insurance, by saying insurance firms can’t charge existing customers more than new ones. We should do the same for energy too.
“But Ofgem should still be able to fix a price cap on the – thankfully pretty rare – moments when there’s an international price spike too.
“Lots of stock markets have an emergency circuit-breaker, where regulators intervene if prices suddenly rise or fall really fast, and we should have the same for energy. Ofgem would be able to intervene to protect customers with a new price cap when it was really needed, if the international price spiked by more than a pre-set amount and time.
“The reformed price cap wouldn’t just stop loyalty penalty ripoffs and protect families from price spikes. It would make energy firms healthier and more resilient too.
“They’d be able to hedge their risks when international prices spike, because the circuit-breaker would only be triggered if prices moved by more than the pre-set amount.
“Challenger firms would be financially stronger and healthier because they wouldn’t face unfair competition from big incumbents with lots of long-term clients who were being milked with loyalty penalties to subsidise new customers either”.
Not-for-profit promoters of clean power Regen earlier this week proposed their own structural reforms, this time to supply and generation.
An ambitious but easy doubling to 10GW of all the onshore renewables projects eligible to enter this December’s coming Contracts for Difference auctions would yield the opportunity quickly to hedge against rising power prices, and at no cost to tax- or bill-payers, the body argued in its letter to Kwarteng.
“CfDs are an excellent energy price hedge: in return for revenue certainty, generators pay back to the public purse when prices are high – directly reducing electricity bills, Regen said. Annual CfD auctions were needed, Regen said.