Energy system ‘broken’: Suppliers to rake in £1.7bn profits as millions of Brits grapple with sky-high bills
Household energy suppliers are on course for a profits bonanza over the next 12 months from customer bills, exposing the country’s “broken” energy system.
A new report from an anti-fuel poverty charities warns that the watchdog’s likely hike in profit allowances from 1.9 per cent to 2.4 per cent of the price cap, alongside falling wholesale costs; could allow energy firms to collectively rack up £1.74bn in profit.
This is even though energy bills are set to remain elevated above pre-crisis levels until next winter.
The findings were revealed in the first Warm the Winter Tariff Watch report, produced in partnership between the End Fuel Poverty Coalition and Future Energy Associates, which will be run quarterly to maintain pressure on the industry.
It shows that over the previous six years, suppliers have seen the amount of profit they are allowed to make every year on the average customer on the variable tariff surge from £27 in 2017 to a high of £130 earlier this year – and currently sits at £60 per customer.
These numbers exclude profits which firms have made from Ofgem decisions to hike allowances following wholesale costs soaring, which fuelled the record profits for energy suppliers including British Gas and Scottish Power.
Separately, Ofgem has confirmed that suppliers have exited a period of four years of loss-making and are now in a position to post earnings again on a regular basis.
Simon Francis, coordinator of the End Fuel Poverty Coalition, has called for a fundamental overhaul of the energy grid and tariffs, otherwise “households will continue to lose out while suppliers will profit.”
“We also need to see urgent and sustained action to reduce our reliance on high levels of energy consumption, such as improving the energy efficiency of homes, driving an increase in cheap renewables and a move away from the fossil fuel profiteers of the past,” he said.
Dylan Johnson from Future Energy Associates added: “Our report reveals that the retail energy market is experiencing swift changes: falling wholesale prices are influencing retail costs, more fixed tariffs are available, and new suppliers are entering with innovative tariffs.”
“Yet, questions persist over the speed of these changes, supplier profiteering, and regulator’s role in promoting competitiveness.”
Households bills to stay high this winter
This comes with growing pressure on households this winter, with forecasters Cornwall Insight expect energy bills to stay historically elevated until at least the fourth quarter of 2024.
It predicts that the price cap – currently set at £2,074 per year by regulator Ofgem – will only fall marginally over the 12-15 months.
Bill Bullen, chief executive of Utilita Energy, told City PM last month that the government should consider a £6bn support package for low-income households this winter, funded by scrapping the legacy renewable contracts scheme.
He said: “We are going to see a bigger problem with affordability this winter than we had last year.”
The government has ruled out further support for households, with energy security secretary Grant Shapps confirmed last weekend they will instead prioritise cutting taxes once inflation has fallen,.
“We don’t want to be in a position… of having to constantly pay energy bills. We’re having to tax people in order to pay it back to people… that money doesn’t come from nowhere,” he said, in an interview with The Sunday Times.