Another Ofgem energy price cap day, another increase in bills. Miatta Fahnbulleh, the new energy secretary, can blame the usual culprit on Wednesday – the fossil fuel price “rollercoaster”, given a shove this time by Donald Trump’s Middle East misadventure. Higher gas prices will indeed be the main quarter-on-quarter reason why bills stand at a three-year high on a unit basis.
But there is more to the tale on a longer view. Even when the gas rollercoaster dips downwards, the energy industry’s medium-term projections suggest bills will not fall meaningfully. Look at the forecast on Tuesday from EDF, one of the big retail suppliers, assuming “some moderation” in wholesale prices.
Top line: “Bills still look stubbornly high at the end of the decade.” Versus its assumed £1,721 for the price cap for the last three months of 2026, the company projects £1,786 in 2030. The number would be £90 lower if the government extends VAT relief on electricity and continues to take a portion of older green levies into general taxation. Either way, former energy secretary Ed Miliband’s naive, or cynical, “£300 off bills by 2030” promise looks non-operative at this point.
EDF can be reasonably confident in its figures because, whatever happens with wholesale prices, more of the bill now comprises easier-to-predict “non-commodity costs”. They cover everything from charges for running and upgrading the gas and electricity grids, price contracts for wind and solar generators, carbon taxes, the cost of the warm home discount for vulnerable households and more. On the electricity side, the wholesale element is just 30% of the bill these days.
EDF accompanied its projection with an appeal for greater transparency on future costs. Absolutely right: as argued here previously, it is astonishing that Ofgem does not make medium-term forecasts to give customers a rough idea of what to expect. The excuse may be that absolute precision is impossible, but the stance makes a supposedly independent regulator appear politically captured.
Ofgem looks afraid to give the awkward message that the necessary energy transition is expensive in the short- and medium-term – and probably getting more expensive. Openness would allow everybody to see where the pressures are coming from. The current suspect is the transmission network and the £70bn programme to relieve constraints and hook up new generation.
Extract — continue reading at the source.
