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A “huge” effort is needed by prime minister Liz Truss to accelerate the construction of power generation and push through market reforms over the next two years, according to one of the architects of the £150bn state intervention to lower British household energy bills.
ScottishPower chief executive Keith Anderson told the Financial Times that the “energy price guarantee” scheme announced on Thursday was “not an end solution” to lower historically high wholesale gas and power prices, which show no sign of abating.
The scheme will limit average domestic energy bills to £2,500 a year until 2024 and provide some support for businesses, albeit only for six months.
Anderson welcomed the intervention but warned the new administration that it had a “huge amount of work” to do to accelerate the construction of renewable energy generation, such as offshore wind farms, and upgrade the country’s electricity infrastructure.
He also called for a programme to wean households off their reliance on gas boilers by replacing them with low-carbon heat pumps and improving the insulation of Britain’s housing stock.
He said that as part of Truss’s plans to reform the energy markets, officials should accelerate the work to decouple the cost of wholesale power from wholesale gas prices.
In the existing system, which was designed before renewable power entered the energy mix at scale, gas-fired power stations usually set the rates for the market even though wind, solar and nuclear produce electricity more cheaply.
“It’s only if you do [all] that you can actually bring this to an end,” Anderson said. “It’s the size of intervention we asked for and I think it will take off a huge amount of anxiety about the winter [but] this of itself is not an end solution,” he added. “This buys you two years to fix a whole load of other things.”
Anderson, whose company has 4.8mn customers and is one of Britain’s six biggest energy groups, is seen as one of the driving forces behind the “energy price guarantee” scheme after he first called for urgent state intervention to shield households from spiralling wholesale energy prices in April.
The rescue package is expected to cost around £150bn, one of the biggest state bailouts in history, although officials on Thursday declined to reveal details. Chancellor Kwasi Kwarteng is expected to give details on the size of the programme when he holds a fiscal event later this month.
Downing Street officials said on Friday that they were confident of getting the domestic support ready for October 1 despite the shutdown of parliament as part of the 10-day period of national mourning following the death of the Queen. The intervention is due to come into force at the start of next month to override an 80 per cent increase in the regulatory price cap that would have pushed the annual bill for a typical household to more than £3,500 a year.
Although the domestic intervention has been broadly welcomed, businesses were less confident about what they would get out of the rescue package after Truss initially limited their support to six months. She did promise a review to assess if further help was needed for the most vulnerable industries.
Details of the support have yet to be worked out, leaving many businesses fearing for their futures. Companies are not covered by any form of price cap and instead must negotiate bespoke deals with suppliers with many due to renew their contracts from October 1 when they face huge increases.
Joe Courtney, who manages three pubs, said he could no longer wait for the government to detail the support. He was considering handing back the keys to the Kings Arms in Meopham in Kent, after the lowest energy contract he was offered came to more than £4,000 a month, several times higher than his existing tariff.
“It’s just heartbreaking. It’s impossible for a small country pub to pay those sorts of prices. We are doing really good trade but it feels like we are fighting a losing battle. We don’t want to give the pub back but what can we do?” he said.
Courtney said his pub in Lewisham, The Summerfield, saw its energy bill double after signing a new contract earlier this year. He does not know whether he will be able to swap this contract for a lower one under the promised government scheme. “It’s not much good if it just locks in sky- high prices.”
Asked about his reaction to the promised state intervention, Andrew Barwood, managing director at Bowles & Walker, precision plastic injection moulders in Thetford, Norfolk, said: “I will believe it when I see it.”
Like many small manufacturers, energy makes up a significant proportion of his company’s costs and Barwood was forced to pay 140 per cent more when he signed his new energy contract earlier this year. He said at current prices it would have gone up 400 per cent. “It’s madness. I am pretty sure it will put companies out of business.”
He added that he could not pass the cost increase on to his customers as they faced similar hikes in energy bills. “Something needs to be done in the next few weeks because it won’t be long before some companies are forced to close their doors.”
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Image and article originally from www.ft.com. Read the original article here.