Yahoo Finance Price cap risks ‘massacre’ of energy suppliers as winter crisis grows
The crisis in energy markets risks sparking a cascade of bankruptcies which will leave as few as five domestic suppliers standing unless ministers introduce urgent reforms, the boss of Scottish Power has warned.
Keith Anderson, head of one of Britain’s largest gas and electricity companies, said the industry is “sleepwalking into a massacre” amid a global gas supply crunch which shows little sign of easing off.
Thirteen relatively small suppliers have already collapsed since the start of September following a six-fold increase in wholesale gas prices and four-fold rise in power prices, forcing their 2m customers to be moved to a new provider.
Mr Anderson said: “If this carries on there is a real possibility you end up back at five or six companies in the market. It will only be the incredibly large, strong organisations that can cope with this - there’s no recovery route.
“We’ve had lots of meetings, a huge amount of engagement [with regulators and Government] - but not one thing has changed.
“All that’s happened is that lots of companies have gone bankrupt, 2m customers are now with a supplier they did not pick, and the cost of all of those failures is getting spread across everybody else’s bill.
“We’re sleepwalking into a massacre.”
Households’ domestic energy costs are currently capped in a bid to protect customers from sharp bill increase. This has kept the average fuel bill at £1,277 - guaranteeing that providers make a loss at current wholesale prices.
The price cap is recalculated every six months based on what is happening in the energy market. Mr Anderson said this is not a frequent enough change.
Any reform is likely to be hugely controversial, given the potential hit to household budgets at a time when costs of petrol and other goods are also rising.
Ofgem, the industry regulator, and the Government have both ruled out any change before April. However, the watchdog’s boss Jonathan Brearley hinted this month that the rules could change after that.
Mr Anderson, whose business has about 4.6m customers, said: “We need to make the cap far more flexible, far more responsive, and far more in line with what’s going on in the marketplace.
“We should start changing the cap more frequently - at the very least every quarter, if not every couple of months, to adjust for the real price in the marketplace, and then put in place protection for the fuel poor and the vulnerable - whether a cap or a regulated tariff.”
Mr Anderson warned that larger companies are now at growing risk from the price moves, with about 1m customers set to roll off existing deals in January and likely onto loss-making default tariffs at an industry-wide cost as high as £5bn.
He said the price cap was causing problems for companies while also not protecting the vulnerable, given that everyone’s energy bills are likely to rise sharply when it is recalculated in April - experts predict by as much as £400.
The number of players in the market has surged in the past few years, reaching a peak of about 70 in 2018 in a challenge to the dominant Big Six.
The market had shrunk back to about 50 by the start of this year, with a string of collapses raising questions about some challengers’ suitability.
An Ofgem spokesman said: “The price cap will remain in place this winter to protect millions of people from the sudden increases in global gas prices. We are also working with government to ensure that we have a sustainable energy market that works for all customers.”
A spokesperson for the department for business, energy and industrial strategy, said: “The Energy Price Cap will remain in place to protect millions of customers from sudden increases in global gas prices.”
