British households face average annual energy bills of more than £5,000 next year, according to the latest forecast, adding to pressure on the government to step in to ease a spiraling cost of living crisis.
The warning from consultancy Auxilione came on the heels of a sharp rise in UK wholesale gas prices this week and came as generators met ministers in Downing Street on Thursday to discuss responding to the impact of higher wholesale energy prices driven mainly by Russia’s pressure on gas supplies to Europe.
After the meeting, outgoing Prime Minister Boris Johnson said the government would “continue to urge the electricity sector to continue working on ways we can ease the pressure of cost of living and invest more and faster in Britain’s energy security”.
But the government has faced accusations of failing to act quickly enough with no decisions expected until the Tory leadership race appoints Les Truss or Rishi Sunak as prime minister next month. No concrete proposals emerged from Thursday’s meeting.
One of the industry figures who attended insisted there was no “complacency” among participants but acknowledged that proposals to help mitigate the crisis now needed “to act with a sense of urgency”.
The prospect of an unexpected tax on electricity generators, some of which have enjoyed bumper profits from renewables and nuclear generation, re-emerged this week.
RWE, the German company that generates about 15 per cent of electricity in the UK, has warned that any government action must be “appropriate and proportionate”. It has previously warned that its planned £15 billion investment in renewables in the UK could be under threat.
“Any insufficiently considered intervention when the energy sector is at a critical juncture – can be counterproductive and risk unintended consequences,” RWE said in a statement after the meeting.
Others have called for more radical solutions as the UK faces the prospect of a deep recession. Former Labor Prime Minister Gordon Brown has suggested that the government may eventually need to nationalize parts of the sector if it cannot bring prices down.
Dale Vince, founder of Ecotricity, a green energy generator and retailer, who did not attend the meeting, said the government needed a “appropriate windfall tax” and “ideally find £40 billion, a tenth of pandemic funding, to get the country through a crisis.” Winter Energy.
Vince also suggested that the government should “impose a price cap on North Sea gas and oil producers”.
The energy price cap, which governs gas and electricity bills for the vast majority of UK households, has already jumped to £1,971 from £1,277 this year. Earlier this week, other forecasts suggested it would hit £4,420 next April.
Auxilione said it expects regulator Ofgem to set the price cap at “just over £3,600” when it announces the results of its next review, which is now held every three months, on August 26. That rally will take effect in October before the cap is expected to exceed £5,000 in the first half of 2023, the advisory added.
Auxilione’s forecast comes on the heels of warnings of a severe drought affecting shipments of coal and other commodities on Germany’s Rhine River, a major artery supplying power plants. Norway has also indicated that it will restrict electricity exports.
Business and Energy Minister Kwasi Quarting – widely likely to be the next adviser if the lead candidate Liz Truss becomes prime minister – is looking at options to decouple electricity prices that are not linked to gas generation.
Kwarteng also attended the meeting along with consultant Nadim Zahawi and companies including RWE, EDF, Centrica, Drax and ScottishPower.
Former Chancellor Rishi Sunak, who is in the running for Truss, accused his rival of being slow to appreciate how worried households are about the prospect of higher bills. He has promised to expand a £15 billion support package announced in May when bills were expected to reach around £2,800 in October.
Truss said she preferred the tax cuts to “grants” but left the door open for more support.
Auxilione said there appeared to be “little appreciation” in the government of “how impossible” to cut prices. “Energy companies and the government have little control over this in such a globally affected market,” she added.
Ofgem cautioned about expectations for a price ceiling due to volatile energy prices.