British households face average annual energy bills surging above £5,000 next year, according to the latest forecast, heaping further pressure on the government to intervene to ease the spiralling cost of living crisis.
The warning from consultancy Auxilione follows a steep rise in wholesale British gas prices this week and came as electricity generators met with ministers in Downing Street on Thursday to discuss a response to the impact of rising wholesale energy prices driven primarily by Russia’s squeeze on gas supplies to Europe.
After the meeting, outgoing prime minister Boris Johnson said the government would “keep urging the electricity sector to continue working on ways we can ease the cost of living pressure and to invest further and faster in British energy security”.
But the government has faced accusations of failing to act quickly enough with no decisions expected until the Tory party leadership race appoints either Liz Truss or Rishi Sunak prime minister next month. No concrete proposals emerged from the meeting on Thursday.
One industry figure who attended insisted there was “no complacency” among participants but acknowledged that proposals to help mitigate the crisis needed to now “be worked up with a sense of urgency”.
The prospect of a windfall tax on electricity generators, some of whom have enjoyed bumper profits from renewables and nuclear generation, has resurfaced this week.
RWE, the German company that generates about 15 per cent of the UK’s electricity, warned however that any government action must be “appropriate and proportionate.” It has previously warned its planned £15bn investment in UK renewables could be under threat.
“Any insufficiently considered intervention when the energy sector is at a critical juncture — could be counter-productive and carries risks of unintended consequences,” RWE said in a statement following the meeting.
Others have called for more radical solutions as the UK faces the prospect of a deep recession. Former Labour prime minister Gordon Brown has suggested the government may need to eventually nationalise parts of the sector if they cannot lower prices.
Dale Vince, the founder of Ecotricity, a green energy generator and retailer, who was not at the meeting, said the government needed a “proper windfall tax” and to “ideally find £40bn, one-tenth of the pandemic funding, to get the country through the winter energy crisis”.
Vince also suggested the government should “impose a price cap on North Sea gas and oil” producers.
The energy price cap, which governs gas and electricity bills for the vast majority of UK households, has already jumped to £1,971 from £1,277 this year. Earlier this week, another forecast suggested it would hit £4,420 next April.
Auxilione said it expected regulator Ofgem to set the price cap at “just over £3,600” when it announces the results of its next review, now held every three months, on August 26. That rise would take effect in October before the cap was expected to exceed £5,000 in the first half of 2023, the consultancy added.
The Auxilione forecast follows warnings of a severe drought affecting shipments of coal and other commodities on the river Rhine in Germany, a key artery for supplying power stations. Norway has also signalled it will restrict electricity exports.
Business and energy secretary Kwasi Kwarteng — who is widely tipped to be the next chancellor if leadership frontrunner Liz Truss becomes prime minister — is looking at options to decouple electricity prices unassociated with gas generation.
Kwarteng was also at the meeting along with chancellor Nadhim Zahawi and companies including RWE, EDF, Centrica, Drax and ScottishPower.
Former chancellor Rishi Sunak, who is running against Truss, has accused his rival of being slow to appreciate how worried households are about the prospect of soaring bills. He has promised to expand a £15bn support package he announced in May when bills were forecast to reach about £2,800 in October.
Truss has said she favours tax cuts over “handouts” but has left open the door to additional support.
Auxilione said there appeared to be “little appreciation” in government “for just how impossible” it would be to lower prices. “Energy companies and the government have little control over this in such a globally influenced market,” it added.
Ofgem has cautioned about forecasts for the price cap given the volatility in energy prices.