Ofgem price cap ‘fundamental problem’ says Ecotricity founder
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While Russian President Vladimir Putin has denied that he is responsible for Europe’s rising gas prices, Vladimir Zhabarov, a member of Russia’s upper house, suggested that Moscow is in complete control over Europe. He said last night: “Nord Stream 2 could be operational as early as this year, otherwise Europe is going to freeze.” It comes after the Kremlin tightened gas supplies into Europe as they await the approval of the controversial gas pipeline by EU regulators.
Alexander Novak, the Russian deputy prime minister, has already stated that getting the pipeline up and running now would put a stop to the soaring gas prices.
The shortage of gas in Europe has already pushed up international prices, leading to a significant rise in household energy bills in the UK and pushing a string of suppliers into administration.
Latest estimates say “around 40 percent” of the EU’s natural gas imports come from Russia.
In comparison, the UK imports less than one percent.
Despite this, the global shortages have pushed international gas prices to record highs – and Britain is also feeling the impact.
Ofgem has now said it was considering a review of how the energy price cap works after wholesale prices in the industry started to spiral out of control.
The energy price cap refers to the limit that energy suppliers can charge customers for their default tariffs. The higher the energy cap rises, the more energy suppliers can charge their customers.
But because of the rising energy prices and a fixed price cap for customers, several suppliers are on the last legs as they struggle to cope, and many have already gone bust.
This is why a handful of companies are pushing for a review of the cap, putting forward that they won’t be able to survive the six-fold increase in wholesale gas prices and a four-fold rise in wholesale power prices without charging customers more.
While the price cap set level only gets reviewed twice a year, Ofgem has not ruled out a price cap review in this emergency.
Things like how the cap is calculated and how often it can be tampered with are expected to be addressed.
Jonathan Brearley, Ofgem chief executive, told trade body Energy UK’s industry conference: “Although the gas price rise is unprecedented today, we will need to plan on the basis that shocks like this could happen again.”
In September, Business Secretary Kwasi Kwarteng resisted calls from the major energy companies to budge on the price cap, saying that it should remain in place.
During crisis talks with the industry, Mr Kwarteng said: “The energy price cap protects millions of consumers.
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“In any scenario, we will ensure UK consumers have continuity of supply – through a supplier of last resort or a special administrator if needed.”
From 1 October, the price cap rose from £1,138 to £1,277 for 11 million consumers on default tariffs, while four million pre-payment customers will see the cap increase £153, from £1,156 to £1,309.
But it is expected to go up again when it is reviewed in April and experts at Cornwall Insight now suspect it could climb by almost £400.
Worryingly for customers, an industry source has indicated that reviewing price caps more often is the “bare minimum” regulators and politicians could do to help suppliers.
But as this could hit households with rising inflation sooner, it is likely to be strongly opposed by many.
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