Energy bills could see a 20% increase in the next five years, even if the actual costs of gas and electricity were to drop by half, a top industry executive has cautioned. Members of Parliament were informed that additional expenses beyond the energy itself, known as “non-commodity” costs, are a major driver behind the rising prices for numerous households. These costs encompass the expenses associated with distributing energy across the nation, along with various government initiatives and taxes, particularly those aimed at achieving the net zero objectives of the Labour party. These supplementary charges make up approximately £300 of the average annual household energy bill.
Rachel Fletcher, the director of regulation and economics at Octopus Energy, the largest energy supplier in Britain, has urged for immediate action. In a statement to the Commons energy select committee, Fletcher warned that if the current trajectory continues, electricity prices for an average household could escalate by 20% in the next four to five years, even if wholesale prices decrease. She emphasized the necessity for radical measures to tackle this issue.
This cautionary message follows closely after the energy price cap set by Ofgem was raised to £1,755 per year for millions of households. A 20% increase in the electricity component of this cap could potentially add an average of £181 to annual bills.
One proposed solution involves moving gas power plants out of the wholesale electricity market and placing them in a “strategic reserve,” which might save consumers an estimated £5 billion annually.
EDF UK’s chief executive, Simone Rossi, highlighted that the cost of serving customers in the UK is double that of their home market in France due to the intricate regulatory environment. Chris Norbury, the head of energy giant E.ON, suggested that by 2030, even if wholesale prices were zero, bills could remain the same as they are currently due to the rise in non-commodity costs.
Simon Francis, the coordinator of the End Fuel Poverty Coalition, expressed deep concern over the potential for bills nearing £2,000 annually. He emphasized the need to find alternative methods of financing necessary investments to prevent overburdening consumers.
Responding to these warnings, a spokesperson for the Department for Energy Security and Net Zero dismissed the speculations, attributing high energy bills to the 75% increase in wholesale gas costs following the events in Ukraine. The spokesperson advocated for transitioning to clean energy to stabilize prices and reduce dependency on fluctuating fossil fuel costs.
In a separate development, the CEO of Centrica, the parent company of British Gas, suggested that financially struggling customers should be exempt from energy charges. Chris O’Shea proposed a tiered system based on income, where lower-income households would pay nothing for energy, while higher earners would contribute more.
Fletcher pointed out that 73% of households are anxious about meeting their energy bills, with concerns easing only for households earning over £100,000 annually. She cautioned that the proposed scheme could inadvertently push more households to the brink of affordability.
During the hearing, energy industry leaders criticized Ofgem on various fronts, including the smart meter roll-out and standing charges review. Additionally, concerns were raised about the significant increase in Ofgem’s workforce.
Experts anticipate energy debts to reach £5 billion by the holiday season due to the cumulative impact of price hikes. Calls were reiterated for improved data sharing from the Department for Work and Pensions to better target assistance for the most vulnerable customers.