MPs have heard calls for ‘radical’ action in the face of an every increasing rise in non-commodity costs on energy bills
Energy bills could surge by another 20% over the next five years – even if the cost of gas and electricity itself halved, an industry boss has warned.
MPs were told so-called “non commodity” costs were one of the biggest factors driving-up prices for millions of households. These include the cost of getting energy around the country, but also a raft of government schemes and levies, including those designed to achieve Labour’s net zero ambitions. The add-ons account for around £300 of the typical household’s annual bill.
Rachel Fletcher, director of regulation and economics at Octopus Energy, Britain’s biggest supplier, called for “urgent” action. “If we continue on the path we are on right now, in all likelihood electricity prices for a typical household are going to be 20% higher in four or five years than they are now, and that is even if wholesale prices halve,” Ms Fletcher told the Commons energy select committee. “We’ve got to do something radical to address it.”
The warning comes just weeks after regulator Ofgem’s energy price for millions of households rose to £1,755 a year. Adding 20% to the electricity component of that could increase bills by average £181 a year.
One suggestion would see gas power plants removed from the wholesale electricity market and placed into a “strategic reserve”, which could save consumers an estimated £5billion a year.
Simone Rossi, chief executive of EDF UK, said the cost of serving UK customers was double that of its home market of France. “It is driven by the fact that we (UK) have a very complex regulation,” he said. Chris Norbury, boss of energy giant E.ON, said: “Some of the modelling we have suggests you could get to 2030 where if the wholesale price was zero, bills would still be the same as they are today because of the increase in those non commodity costs.”
Simon Francis, coordinator of the End Fuel Poverty Coalition, said the prospect of near £2,000 a year bills was “hugely concerning.” He added: “We have been warning about this and how you pay for the investment that is needed. There must be a better way so as that is not front-loaded onto consumers.”
A Department for Energy Security and Net Zero spokesperson hit back: “We categorically reject this speculation. Wholesale gas costs for households remain 75% higher than they were before Russia invaded Ukraine in 2022, and the main reason energy bills remain high. The only way to bring down energy bills for good is by making Britain a clean energy superpower, which will get the UK off the rollercoaster of fossil fuel prices and onto clean, homegrown power that we control.” Energy Secretary Ed Miliband this week predicted that clean power will significantly lower the wholesale cost of electricity.
It came as the boss of British Gas owner Centrica recommended hard-up customers should pay nothing for their energy. Chris O’Shea told the committee: “There are people who can’t afford to pay anything for their energy bill and if we had the right data they would simply not receive a bill, and those who of us can afford to pay more would pay more.”
Mr O’Shea suggested splitting households into different income brackets, adding: “You would have bands and those on a certain amount of income and a certain amount of expenditure would have no bills and it would go up in bands and those with a lot of income would pay substantially more for their energy.”
Ms Fletcher said 73% of households are worried about paying their energy bills. She added: “You have to get to households who are earning £100,000 or more before you see that concern start to fall off. The scheme Chris has said would, unless dealing with a very small number of people spread over a very large number of people, just tip more into that position where they are really at the edge of being able to afford.”
Those giving evidence repeated the call for better sharing of data from the Department for Work and Pensions to provide targeted help for those customers most in need.
Energy debts are predicted to hit £5billion by Christmas because of the accumulated impact of price rises, MPs were told.
The energy bosses used the hearing to round on Ofgem for a number of issues, including around the smart meter roll-out and a review of standing charges. MPs also heard Ofgem’s workforce had risen sharply.
