What are the merits of UK suppliers’ proposal to freeze energy bills?
The clamour for the government to intervene to help households with their energy bills grows louder by the day. The Treasury is examining options to alleviate the cost of living crisis, which include extending the existing energy bills support scheme (EBSS) established by the then chancellor, Rishi Sunak, in May. On Thursday, the energy industry united behind its own proposal for a “deficit tariff scheme” to freeze prices at current levels by plugging the gap between wholesale costs and what consumers pay. Here, we examine the merits of the scheme.
Energy UK, the industry body for companies that sell electricity and gas to homes and small businesses, is proposing commercial banks put money into a state-backed fund. Retail suppliers could then draw on this fund to freeze customer bills at £1,971 – the current price cap – for two years. The debt built up by suppliers would be repaid by consumers, either through a surcharge on bills or from general taxation over a 10-15 year period. This would protect consumers from an immediate hit, while stopping more suppliers going bust – 29 energy companies have collapsed during the crisis. Many were squeezed by rising wholesale costs they were unable to pass on to consumers because of the price cap.
Various iterations of this idea have been examined and proposed, but the latest initiative was put forward by ScottishPower and E.ON at a meeting between Boris Johnson and industry last week. Earlier this week, Centrica, which owns British Gas, and Octopus lent their weight to the scheme and on Thursday Energy UK, which counts some of the industry’s biggest players including EDF and Ovo among its members, came out in support.
The scheme could be very costly, with some estimates of as much as
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