The government announced in May 2022 that it intended to bring forward legislation which would include enabling the extension of the price cap beyond 2023, according to the National Audit Office1. The cap was introduced by the Department for Business, Energy and Industrial Strategy in 2019, and Ofgem has been required to operate it since1.
The announcement came during a period in which 29 energy suppliers failed between July 2021 and May 2022, affecting nearly four million households in the UK1. Ofgem's current best estimate of the cost of transferring customers of failed suppliers to new suppliers through the supplier of last resort process, plus missed payments to support renewable generation, is £2.7 billion, which equates to around £94 per customer; the NAO states this cost is very uncertain and could go up or down1. Ofgem has approved claims worth £1.8 billion, around £66 per customer paying for energy at the price cap, for the supplier of last resort of 2.2 million customers from 22 suppliers that failed between September and December 2021, and expects to approve a further £548 million of related claims under current rules1. A further £296 million may be added to customers' bills because some failed suppliers missed payments into government schemes supporting renewable generation1.
The NAO also set out how the cap has moved since it began. The bill for a typical customer purchasing energy at the price cap rose 78% since its introduction, from £1,105 per year in the winter of 2018-19 to £1,971 in the summer of 20221. The weekly average wholesale price of gas rose nearly six-fold between February 2021 and December 20211.
"In May 2022, the government announced that it intended to bring forward legislation which would include enabling the extension of the price cap beyond 2023"
The NAO's figures on the supplier market show how far it changed before the failures. The total number of domestic suppliers went from 12 in December 2010 to 23 in May 2022, with a peak of 70 suppliers in mid-2018, and by September 2021 new entrants held around 40% of the market share1. Ofgem introduced new assessments of applicants for a supplier licence in July 2019 but did not introduce tighter rules for existing suppliers until January 20211. In December 2021, Ofgem published an action plan on retail financial resilience setting out plans to strengthen the financial resilience of suppliers1.
Bulb Energy, with approximately 1.6 million customers when it was placed in special administration in November 2021, cost £0.9 billion to run through the regime in 2021-22, with £1.0 billion budgeted for 2022-23; the actual cost could be above or below that amount1.
| Measure | Figure |
|---|---|
| Suppliers failed, July 2021 to May 2022 | 29 |
| Households affected | Nearly four million |
| Customers moved through supplier of last resort since July 2021 | 2.4 million |
| Estimated cost of transfers and missed renewable payments | £2.7 billion, around £94 per customer |
| Typical price cap bill, winter 2018-19 | £1,105 per year |
| Typical price cap bill, summer 2022 | £1,971 per year |
Why it matters for households
The price cap sets the maximum a supplier can charge for a unit of gas or electricity on a default tariff, so its continuation beyond 2023 determines whether that protection remains in place for households that have not switched to a fixed tariff. The NAO's figures show the cap has not insulated households from wholesale price movements: the typical bill under it rose 78% between the winter of 2018-19 and the summer of 20221. The costs of supplier failures are also recovered through bills, at an estimated £94 per customer, which sits alongside the capped unit rates rather than replacing them1. For a household's energy independence, the practical effect is that the default tariff remains a regulated backstop rather than a fixed price, and the costs of the market's restructuring are shared across all customers paying at the cap1. The NAO notes the £2.7 billion estimate is very uncertain and could rise or fall1.
What happens next
The government said it intended to bring forward legislation including the extension of the price cap beyond 20231. The NAO report does not set out a date for that legislation, and no further detail on its contents has been reported1. Ofgem expects to approve a further £548 million of supplier of last resort claims under current rules1.
Sources1 cited
- The energy supplier market, nao.org.uk