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. EDF’s account of rising costs and deployment delays chimes with what the rest of the industry is saying.
“There is, however, currently very limited public information to assess whether the current programme of investment remains the right one,” it says, calling for “a radical increase in transparency” and a strategic review. Fair point: when the spending programme equates to £1,000 a person, Ofgem has to be seen to get best bang for our buck.
Transparency would help in other ways. First, it would underline how towering bad debts in the system could become colossal. Households in Great Britain could owe their energy suppliers as much as £7bn by the end of the year, warned trade body Energy UK this week. What’s the political plan? A social discount scheme is now urgent.
Second, if the electrification is the goal, tell businesses and households what’s coming on electricity prices so they can price up heat pumps and electric vehicles. The pace of adoption of the former should embarrass the government: 52,000 retrofit heatpumps were installed last year versus 1m-plus gas boilers. “Ofgem should commit to publishing a first independent outlook for energy bills before the end of this year,” recommends EDF. The regulator’s bone-headedness on the point is inexplicable – unless it is being leant on.
Political dangers for Labour are mounting. The Conservatives, endorsing a “cheap power” report from centre-right thinktank Onward, last week laid out an alternative post-2030 script that imagines more nuclear (beyond Labour’s ambitions) and a bigger role for gas in generation while keeping the installed renewables.
Many energy analysts have criticised the cost assumptions behind the claim that such a set-up would save consumers £320bn by 2050 (we’ll come to those assumptions another day). But Claire Coutinho, the shadow energy secretary, was still right to complain that the government never published a “full system cost” analysis – one that takes full account of the back-up, balancing and extra grid costs created by using more weather-dependent generation. Again, there is a need for straight transition accounting: you can’t just count the gains from using less gas.
Fahnbulleh is in a tight spot. In a less fiscally constrained world, the chancellor would shift more transition costs into general taxation as many other European countries do. If John Healey can’t dig deep, her argument can no longer be that a clean power system is straightforwardly “cheap” for consumers but that it is cheaper than the alternatives eventually.
