Swift action from UK government expected on energy prices

Out-Law News | 21 Sep 2021 | 3:05 pm | 2 min. read

The UK government will “prioritise consumers” in any action it takes in response to the wholesale global gas price increase, the business secretary has said.

The government and Ofgem, the energy market regulator, issued a public statement yesterday following a meeting with some of the country’s largest energy suppliers and consumer groups. Further meetings with smaller and ‘challenger’ energy suppliers will follow later this week.

Business secretary Kwasi Kwarteng and Ofgem chief executive Jonathan Brearley said that “ongoing support for energy customers, especially the elderly and vulnerable” was the top priority for both the government and energy suppliers.

“In the event an energy supplier fails, we are committed that consumers face the least amount of disruption possible – and there are clear and well-established processes in place to ensuring this is the case,” they said.

Four small UK energy suppliers have ceased to trade since the start of September, against a backdrop of record high wholesale gas prices and increasing demand as countries emerge from Covid-19 lockdown. Where a supplier fails, customers are automatically transferred to a new supplier chosen by Ofgem through its competitive ‘supplier of last resort’ process, but are entitled to move to their own chosen alternative supplier without penalty once the transfer is complete.

Becca Aspinwall

Becca Aspinwall

Legal Director

The last decade has seen a real boom in energy suppliers, so if these collapse there will be considerable strain on the remaining energy providers

The energy price cap set by Ofgem will increase from 1 October to reflect the over 50% rise in energy costs over the last six months. The cap applies to the around 15 million UK consumers on default tariffs, and is reviewed by Ofgem every six months based on the latest estimated costs of supplying energy. The price cap for customers paying by direct debit will increase by £139 to £1,277, and the price cap for prepayment customers will increase by £153 to £1,309.

Both the government and Ofgem have committed to retaining the energy price cap. Energy market regulation expert Becca Aspinwall of Pinsent Masons, the law firm behind Out-Law, said that adjusting the cap was only one potential option open to the government.

“It will be interesting to see to what extent the government is willing to prop up the smaller energy companies, as opposed to supporting the bigger players in taking on unprofitable contracts,” she said. “The last decade has seen a real boom in energy suppliers, so if these collapse there will be considerable strain on the remaining energy providers.”

“Other options that suppliers and the government are likely to be considering include raising funds from investors, merging or entering into joint ventures, and amending the price cap to enable suppliers to pass through increased costs to end customers. All these options are not straightforward, so the government will need to move quickly – but whatever interventions are implemented, it is likely that either the consumer or taxpayer, or both, will bear a significant proportion of the costs, which will not be welcomed as we approach winter,” she said.

Addressing parliament yesterday, the business secretary said that the UK has “more than sufficient capacity” to meet energy demand into the winter.

“We remain confident that electricity security can be maintained under a very wide range of scenarios,” he said.

Kwarteng told MPs: “It is not unusual for smaller energy suppliers to exit the market – particularly, I may add, when wholesale global prices are rising”.

“The current global situation may see more suppliers than usual exiting the market, but this is not something that should be cause for alarm or panic. We have clear processes in place to make sure all customers are supplied with energy,” he said.