The expected energy price cap rise in April could raise the number of fuel poor households by 525,000, new estimates have revealed.
The number of homes with at least one dependent child, that struggle to meet rising energy bills, is likely to rise from around 1.58million to 2.1million in April, according to charity National Energy Action.
Ofgem’s price cap is due to increase by as much as £600 from its current level of £1,277 as wholesale prices continue to soar, fuelling the energy crisis and leading to increased bills.
However, experts say there are changes that could be made to ensure prices decrease and households aren’t left with sky high bills they can’t afford.
Those in fuel poverty, with at least one dependent child, may rise to 2.1m as of April this year
National Energy Action is calling on the Government to expand eligibility for the Winter Fuel Payment from just pensioners to include 2.4million working age, low income households across the UK, providing a £300 payment.
It added the Warm Home Discount scheme, which provides eligible households with a £140 discount on their bill, should also be expanded to provide guaranteed access to more working age households who often miss out because they might not know about the scheme or the resources overall are far too limited.
Peter Smith, director of policy and advocacy, said: ‘It’s heart-breaking to see the number of children who could be in fuel poverty if there is a massive energy price cap rise in April.
‘It will be an exceptionally grim time for families, in particular, for single parents.
‘The Government can help alleviate the levels of debt that families have accrued during this crisis and through the pandemic, through no fault of their own.
‘These targeted steps can help offset some of the worst impacts of the crisis for low-income families.
‘We hope any interventions will be announced soon and relieve some of the huge anxiety and worry the likely April rises are already causing’.
Experts at energy analysts Cornwall Insight added the focus of policy makers on short-term solutions to rising energy prices is risking the long-term sustainability of the energy sector and leaving the public vulnerable to increasing costs.
It believes current solutions, including the price cap, only attempt to deal with failings in the existing energy market design and only delay risks and increased costs or, at worst, increase them.
To future proof the sector, safeguard against continual consumer price hikes and protect the wider economy, Cornwall Insight has identified three areas that should be examined as a long-term response to the crisis:
1. Reforming the wholesale markets so they will better respond to volatile gas driven balancing costs as the world moves away from fossil fuels
2. Developing a better understanding of the changing inter-relationship of wholesale prices with consumer costs and determining the fairest route for recovery of costs over time
3. A concerted communication exercise that explains to the public the muti-generational return on investment that underpins net zero
Experts have suggested a number of changes the Government could make to help households
It wants these three areas to be addressed in further detailed policy work from the Government.
This includes adopting a sustainable approach to achieving net zero, maintaining commitments and the UK’s reputation for stable, competitive markets and creating justifiable and equitable financial impacts on households and businesses in the long run.
Gareth Miller, chief executive officer at Cornwall Insight, said: ‘The current energy crisis is of economy wide concern, having a potential impact on business competitiveness, general inflation, and household affordability.
‘It is vital the magnitude and speed of actions match the scale of risk faced by the economy from the current situation and that attentions turn away from quick fixes, and instead focus on large scale reform of the energy system.
‘It is not helpful for government to keep pointing to the default tariff cap when pressed on what action it is taking.
‘The cap will not protect consumers from increases in gas and power prices in the long run.
‘Certainly, the cap has delayed the burden of these costs to consumers, but they will face them anyway as the default tariff cap rises in a lag to the rise in gas and power prices.’
Miller says consumers must remember the default tariff represents Ofgem’s view of a ‘fair’ price for energy.
Therefore, if it is rising, this suggests the regulator thinks that an appropriate response is for suppliers to be able to charge this rate to consumers.
He adds: ‘If the costs of supply are rising but deemed fair, but the impacts on households will create hardship, this cannot conceivably be dealt with through the energy bill or market mechanisms.
‘At that stage, the Government should attempt to alleviate pressure on vulnerable households through the tax and welfare system.
‘In any event, to avoid repeats of these issues in the coming years, we need to look again at how wholesale markets price energy, as the current system was designed for a different supply mix.’
Experts say whilst the short term solution is important, there needs to be long term change
Further suggestions from Cornwall Insight include reconsidering the strategy for buying and storing gas as well as the balance between importing from abroad and the benefits of using the UK’s own resources.
This is particularly important as where the UK gets gas from is irrelevant so long as it sticks to a declining usage as the country moves to net zero.
Miller added: ‘These activities are by no means easy and will require upfront investment on top of levies and costs already being paid by consumers.
‘It is essential that the Government is open and honest with the electorate, about the profile of costs but also the accumulation of benefits of net zero.
‘There should be some acceptance of what is controllable and what isn’t, and what are the uncertainties that may change the trajectory as we make progress.
‘The immediate focus is on the real crisis about to impact households in the here and now. However, we urgently also need to look to long-term reforms if we are to avoid lurching from winter crisis to winter crisis in the years to come.’
How did the energy crisis start?
The crisis began in August. It was sparked by a number of factors, but ultimately was due to the lack of natural gas being produced, as well as an increase in demand.
Demand rebounded quicker than expected after the global pandemic, but reserves were slow to refill over this summer with supply from Russia lower than predicted.
As a result of this, wholesale prices started to rise with suppliers being charged much more for their gas.
They, in turn, then had to charge their customers more to cover the extra costs.
Whilst many had already hedged their bets and bought enough supply for a year in advance, meaning they were able to continue serving their customers, other providers had not done this.
This meant they were being charged the new, higher rate and could not afford it.
A total of 25 suppliers have collapsed since August, representing half of those in the market.