Thursday, 26 May 2022
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Thursday, 26 May 2022

New analysis reveals the true cost of rising energy price cap

TODAY people all over the UK will see a huge increase in their energy bills as the energy price cap rises. People on lower incomes, many of them in vulnerable circumstances struggling and on prepayment meters or with health conditions will be the hardest hit.

New analysis from the Centre for Sustainable Energy reveals the true cost of extortionate increases in standing charges and the disproportionate impact on people on low incomes.

Standing charges will go up by around 80%. CSE’s analysis shows this increase will be a much higher proportion of a low-income household energy bill because they generally use much less energy than wealthier households.

CSE’s research team designed a set of energy customer architypes for Ofgem in 2020. The archetypes describe household characteristics, incomes and energy use. We used this to go beyond the mean and look at the distributional impacts from the price cap changes. We’ve used the result for two ‘architype’ households:

  • Wealthy families – High incomes, owner-occupied, middle-aged adults, full-time employment, big houses, very high consumption, solar PV, environmental concerns.
  • Isolated pensioners – Very low incomes, single female adult pensioners, non-switchers, prepayment meters, disconnected (no internet or smartphones).

New analysis reveals the true cost of rising energy price cap

These percentage increases are very significant for people on low incomes. They are already having to make tough choices about paying for energy or other essentials like food. They simply can’t cover any additional costs.

Ian Preston, director of household energy at CSE said:

“One of the main reasons for this extortionate increase in standing charges is to cover costs of the collapse of 30 energy suppliers.

“This is particularly unfair for people on low incomes and those on prepayment meters. These households are less likely to switch energy suppliers so it’s unlikely they ever benefited from cheaper energy deals before suppliers went bust.

“It’s not fair that these households are paying for the energy market failure through bills. If the government insists on reclaiming these costs via our bills, then they should be collected at the unit rate so those that consume more energy pay more.

“The average annual energy bill will rise to around £2,000 – this will be difficult for many households to deal with, but the increase only represents 6% of a wealthier household’s income compared to 12% for a low-income household. This is percentage increase is significant for people on low incomes, who are already having to make tough choices about paying for energy or other essentials like food. They simply can’t cover any additional costs.

“Every month, CSE’s advice service helps thousands of people reduce their bills and we’ve already seen unprecedentedly high numbers of people seeking energy-saving or financial advice. Urgent support is needed to cope with the UK pandemic of fuel poverty. CSE is calling for policy shifts to even the impact of the energy price cap increase. But the only long-term solution is insulation. We need to stop energy waste from cold buildings and homes. If you insulate someone’s home, you are literally insulating them against the cost of energy.”

CSE is calling for:

  • Warm Front 2.0. A national insulation programme for England that delivers solid wall insulation to fuel poor households. This would boost employment and training via an accompanying apprentices programme.
  • A separate price cap for prepayment meters. Due to the barriers prepayment meter customers face in accessing the energy market, Ofgem needs to re-establish a separate price cap for these customers to protect the most vulnerable households in the UK.
  • Redesigning the standing charges. The extortionate standing charges need to be tackled and slimmed down so that customers are only paying the fixed costs to supply them.
  • Funding for advice. Energy advice support services are overwhelmed and there is no national funding for in-depth fuel poverty support and advice. The government needs to establish a national network of local energy advice providers to support the most vulnerable households.
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