The UK price cap, which will limit the average annual gas and electricity bill to £ 1,277 from next month, is expected to rise to £ 1,834 if households were to cover the full cost of the purchase of supplies today for the next 12 months.
The figure, calculated by industry consultants EnAppSys for FT, exposed the pressure the government is facing to protect consumers from an energy crisis that has exacerbated the “cost of living” crisis.
Business Secretary Kwasi Kwarteng has ruled out calls by some companies in the sector to remove price caps, which they say has distorted market signals and will contribute to the predicted collapse of 40 small energy suppliers. retail this winter.
The small suppliers, in a meeting with officials on Tuesday, called for changes to the way regulator Ofgem calculates the price cap, which it reviews every six months, people familiar with the discussions said.
But Kwarteng rejected the requests. “They wanted the cap to be adjusted or changed or adjusted or recalculated, and his answer was ‘no, no, no, no,’” said a person familiar with the discussions.
Kwarteng said he is putting consumer protection at the center of discussions with retail energy providers. The government has made efforts to place the customers of bankrupt energy suppliers with large companies without weakening the entire sector.
At least five energy retailers have gone bankrupt since early August and more are expected to close this week.
The cap is based on various elements, including government levies and taxes, but the wholesale price of gas and electricity contributes at least 40 percent.
Consumers are already facing a £ 139 increase in their energy bills in October following Ofgem’s announcement in August that the cap would be lifted as gas prices started to soar.
EnAppSys figures are based on the cost of purchasing one year of electricity and gas for an average household in the wholesale energy futures market today.
Future prices reflect traders’ current expectations for the market position in the coming months and are used in a wide range of government calculations and forecasts. They will change in the coming months, but could go up or down.
EnAppSys’ methodology was based on details published by Ofgem on the role that wholesale prices play in determining the price cap.
“These show that if the next 12 months were covered against the base charge, the actual cost of provision would be £ 1,834 versus £ 1,277,” said Phil Hewitt, director of EnAppSys and veteran of markets energy for 20 years.
“In short, the price cap will have to rise again. “
Hewitt and others in the industry expect the possible increase in the price cap to be much smaller, likely closer to £ 100 or £ 200 next spring, due to government intervention, such as state-guaranteed loans to energy companies, to cushion the impact of record high prices during the winter.
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But the full costs of the higher wholesale prices will have to be paid ultimately, either by billpayers or from general taxation.
One option, which is normally used when small retail providers fail, is to spread the cost across all household energy bills over a number of years, but in the past these amounts were much lower.
EnAppSys figures suggest that all households could face higher energy bills for some time, even if prices cool down next year if the government chooses that route. The alternative would be to cover the costs through general taxation and borrowing, but the Treasury would be concerned about the expenses.
Energy prices have skyrocketed as the gas market has been hit by stronger demand as economies recover from the depths of pandemic restrictions last year, while supplies have been squeezed by demand higher liquefied natural gas and lower supplies from Russia.