Energy bills are projected to rise by another 20% in the next five years, even if the actual cost of gas and electricity were to decrease by half, according to a top industry executive. The surge in prices for millions of households is largely driven by “non commodity” expenses, such as the expenses associated with distributing energy across the country and various government initiatives aimed at achieving net zero targets. These additional costs make up approximately £300 of the average household’s yearly bill.
Rachel Fletcher, the director of regulation and economics at Octopus Energy, the UK’s largest energy provider, emphasized the need for immediate action to address the escalating prices. She warned that if the current trajectory continues, electricity prices could be 20% higher for an average household in four to five years, even if wholesale prices were to decrease. This urgent call for action was made during a session with the Commons energy select committee.
Recent data from Ofgem revealed that energy prices for millions of households have already increased to £1,755 per year. A potential 20% increase in the electricity component alone could result in an additional average annual cost of £181 for consumers.
Proposals to move gas power plants out of the wholesale electricity market and into a “strategic reserve” have been suggested as a measure that could save consumers an estimated £5 billion annually.
Industry leaders like Simone Rossi, EDF UK’s chief executive, highlighted the challenges faced in the UK market compared to France due to complex regulations, which contribute to higher costs for serving customers. Chris Norbury, the head of E.ON, echoed concerns about the continuous rise in non commodity expenses, suggesting that even if wholesale prices were zero by 2030, bills could remain the same due to these escalating costs.
Amid these concerns, Simon Francis from the End Fuel Poverty Coalition expressed alarm at the possibility of households facing nearly £2,000 in annual energy bills. He stressed the importance of finding alternative ways to fund necessary investments without burdening consumers disproportionately.
In response to these warnings, a Department for Energy Security and Net Zero spokesperson refuted the claims, attributing high energy bills to increased wholesale gas costs following the Russia-Ukraine conflict. The spokesperson emphasized the need to transition to clean energy sources to stabilize prices in the long term.
Furthermore, Chris O’Shea, the head of Centrica, proposed a tiered billing system based on income levels to assist financially vulnerable customers. This approach would ensure that those who struggle to pay their bills receive support, while higher-income households would pay more for their energy usage.
As concerns about energy affordability persist, calls for improved data sharing from the Department for Work and Pensions to target assistance for the most vulnerable customers have been reiterated by industry experts.
Projections suggest that energy debts could reach £5 billion by the holiday season due to the cumulative impact of price hikes. During discussions, energy executives criticized Ofgem on various issues, including the smart meter rollout and standing charges, while also noting a significant increase in Ofgem’s workforce.
