Ofgem boss: Hike in household energy bills ‘almost inevitable’
Ofgem boss Jonathan Brearley has warned a further painful hike in household energy bills is “almost inevitable” and that the “gas crisis is not over.”
Following Russia’s invasion of Ukraine, gas prices soared to a record £8 per therm earlier this week – a near twenty-fold increase on prices this time last year.
While the UK has already suffered severe market carnage, with dozens of suppliers collapsing from the lethal combination of spiking wholesale costs and the constraints of the consumer price cap, Brearley gloomily announced the worst is yet to come.
He said the UK is “entering a second, more serious phase that will have further consequences for customers and further financial strain for retail companies.”
Brearley concluded: “While it is too early to predict what the price cap will be in October, a price increase is almost inevitable.”
The energy regulator has recently announced hedging controls and financial stress tests, alongside charges for firms that take consumers from other suppliers.
It has also raised the consumer price cap an eye-watering 54 per cent to nearly £2,000 in April.
His forecast of a likely further increase in October follows sobering reports from analysts at Investec, Cornwall Insight and Goldman Sachs that the price cap could soar to £3,000 per year.
Thomas Pugh, economist at RSM UK, suggests the mechanism could even hit £3,500 if wholesale costs remain elevated throughout the year.
He said: “The biggest impact could come in October, however, as that’s when Ofgem is due to review its price cap. The cap will probably be raised by around 30 per cent, but if natural gas and electricity prices remain at current levels, it could go up by as much as 75 percent.”
Regulator leads calls for ramping up renewables
The Ofgem chief also said the current crisis also reiterates that is not in the interest of consumers for prices to be vulnerable to geopolitics or international gas markets.
While the UK has significantly ramped up renewables in recent years, gas remains the dominant energy source for households.
Brearley believed the current crisis enhanced the case for ramping up renewables.
Brearley said: “It is now not only a transition away from over reliance on fossil fuels to tackle climate change, it is a transition away from volatile prices. And we must look to make that transition as short as possible.”
The Prime Minister Boris Johnson has revealed he will be setting out an energy supply strategy over the coming days – with reports the UK could ban Russian oil imports.