The Business, Energy and Industrial Strategy (BEIS) Committee published its report on energy pricing and the future of the energy market on 26 July 2022, with recommendations to government. The Government has two months to respond1.
The report states that between July 2021 and May 2022, 29 energy suppliers in Great Britain collapsed, with a combined market share of nearly four million customers, more than 10%2. Through the Supplier of Last Resort process, 2.4 million customers were moved from 28 failed energy companies to new suppliers since July 2021, which is expected to add £2.7 billion, or £96 per customer, to energy bills1. The Special Administration Regime was used for the first time after the collapse of Bulb Energy in November 2021; the Government's continued support of Bulb is expected to cost at least £2 billion1. The report says the Government spent £0.9 billion in 2021-22 to maintain supply to Bulb's customers and budgeted a further £0.92 billion for 2022-232.
The Committee was critical of the regulator, stating:
"Ofgem has proved incompetent as the regulatory authority of the energy retail market over the last decade."
On prices, the report says the energy price cap is now expected to increase to £3,244 in October and remain elevated thereafter1. It notes that the Energy Bill [HL] (2022) included provisions to extend the energy price cap beyond 2023, but that neither the Government nor Ofgem has evaluated its costs and benefits or considered alternative forms of price protection, including a social tariff1. The Committee recommends that the Government consider a social tariff for the most vulnerable customers and a relative tariff for the rest of the market1.
| Recommendation | Detail |
|---|---|
| Social tariff | For the most vulnerable customers1 |
| Relative tariff | For the rest of the market1 |
| Prepayment customers | Ofgem to work with suppliers ahead of this winter to identify vulnerable prepayment customers at risk of self-disconnection and offer to convert them to credit mode1 |
| Standing charges | Assess whether standing charges are appropriate for prepayment customers1 |
| Home insulation | Implement urgent, far-reaching and long-term measures to retrofit the UK housing stock1 |
The report states that the absence of a home insulation programme is an unacceptable gap in policy that must be rectified1. It also recommends that the Government publish its overdue Fairness and Affordability call for evidence, consider moving legacy policy costs to taxation, and develop a scheme to support vulnerable customers to accelerate the repayment of energy debt resulting from this crisis1.
Why it matters for households
The report sets out the scale of costs already passed to billpayers through supplier failures: £2.7 billion, or £96 per customer, from the Supplier of Last Resort process1. It also flags further potential costs from the Bulb administration, which the Government can recover through a levy on energy bills1. For a household, these are costs added to bills that are separate from wholesale energy.
The report's central warning is on the October price cap, which it says is now expected to reach £3,244 and remain elevated thereafter1. It states that the Government's May 2022 support package is no longer sufficient to respond to expected price increases come October1. The Committee's proposals on a social tariff and a relative tariff, and on prepayment customers at risk of self-disconnection, go to how protection might be structured. The report also links energy independence to reducing dependence on imported gas, describing energy efficiency as the quickest and most cost-effective way to reduce gas demand and lower energy bills1. The energy price cap is set by Ofgem, whose role and remit the report examines in detail.
What happens next
The Government has two months to respond to the report1. The report also calls for the Government to publish its long-delayed Strategy and Policy Statement for Ofgem, to delineate responsibilities between the regulator and BEIS1, and for Ofgem to publish a more robust impact analysis of its proposals for suppliers to ringfence customer credit balances1. It recommends that the Government bring forward legislation to increase the frequency of Renewables Obligation payments1. The report sits within the wider framework of UK home energy regulation and policy.
Sources2 cited
- Energy pricing and the future of the energy market - Business, Energy and Industrial Strategy Committee, publications.parliament.uk
- Energy pricing and the future of the energy market - Business, Energy and Industrial Strategy Committee, publications.parliament.uk