Continued volatility in the wholesale natural gas prices will mean a further hike in the energy price cap in October, putting “a huge strain” on households, Ofgem chief executive Jonathan Brearley said.
In a speech Wednesday at the All-Energy conference in Glasgow, he said that gas markets “remain in a febrile state” since Russia’s “horrific invasion” of Ukraine. Over the last three months, natural gas prices have fluctuated wildly, from around four times their average level the previous winter to a peak of nearly 16 times the usual level.
“As a result we do expect further price increases later this year,” he said. He didn’t speculate about how high the price cap will rise when the regulator next adjusts it in October to account for recent high wholesale prices.
But the Office for Budget Responsibility (OBR) and the Bank of England have both recently predicted the cap will hit £2,800/year, while analysts Cornwall Insight forecast a £600 hike to £2,595 for a dual-fuel household with typical use.
Brearley said that already “business customers, the energy industry and many consumers, especially the vulnerable, are being put under extraordinary strain” by high energy bills.
“I talk to customers on a regular basis, and I know how tough rising energy prices are for many households and businesses,” he said. “For some, not being able to afford rising energy bills is literally a matter of life and death.”
As an example, he pointed to the story of a woman from Glasgow. Unable to work while she undergoes treatment for a brain tumour, she’s struggled to keep up with rising energy bills and is worried she’ll have to choose between heating and eating.
“What was shocking was to learn that she feels more comfortable in hospital where she can eat and be warm than at home,” he said.
He said that the regulator is working with the government, industry, and NGOs to look after customers.
That includes the Ofgem’s recently announced investigation into reports energy suppliers have excessively increased direct debits, beyond what is needed to cover the April price increase. Business secretary Kwasi Kwarteng has said suppliers will face “substantial fines” if they can’t explain direct debit increases.
Brearley said the regulator will launch other market compliance reviews to ensure suppliers are meeting their obligations around customer service, affordability, and the treatment of vulnerable customers.
Ofgem will also implement “tighter and tougher controls” on energy suppliers, with an emphasis on financial resilience, to prevent another wave of supplier of collapses. The failure of nearly 30 energy suppliers in the autumn and winter impacted more than four million households and will cost the taxpayer and energy billpayers billions.
“Now, more than ever, we expect customer service standards to be maintained and customer payments to be fair. Customers need to be able to turn to us with confidence,” he said.
However, he said there are limits to what Ofgem, the industry, and NGOs, can do to mitigate the impact of record gas prices.
“Even by doing everything we can, none of us can solve or even mitigate this gas crisis alone – we need to work with government,” he said. “That is why I am pleased the Scottish and UK governments intervened to help customers earlier this year and, as you would expect, we continue to have active conversations about what more can be done.”
“I cannot find a similar situation to the gas crisis in our post-war energy history,” he added.