Power crisis

Energy firms propose new fund to cut bills

Keith Anderson ScottishPower
Keith Anderson: unprecedented action needed (pic: Terry Murden)

Two big energy suppliers, ScottishPower and Eon, have proposed the setting up of a special fund that would allow the industry to freeze customers’ bills for two years.

They say it would require billions of pounds worth of loans but would help energy users spread the cost of soaring prices

Acknowledging the unusual scale of the proposed, Keith Anderson, ScottishPower’s chief executive said: “Unprecedented times call for unprecedented action.”

Annual household bills are expected to leap from an average £1,971 to an estimated £3,582 in October, when the price cap set by Ofgem goes up. It will announce the level of the next price cap on 26 August.

Research firm Cornwall Insight predicts that bills will rise to £4,426 a year next April, before falling back.

Boris Johnson, Chancellor Nadhim Zahawi and the Business Secretary Kwasi Kwarteng met representatives of 15 energy companies last week amid growing concerns for immediate action to tackle the issue.

Under the scheme being pitched by ScottishPower and Eon, a “deficit fund” would be set up and underpinned by a government guarantee. According to The Sunday Times, the fund would borrow billions of pounds from commercial banks.

Energy suppliers would then cap the bills of customers on default tariffs at the current level of £1,971 for two years, and fund the difference between that and the wholesale price by drawing down from the deficit fund.

The loans would be repaid over 10 to 15 years, either by suppliers adding a small surcharge to customers’ bills, or through adding the cost to general taxation. An industry source said the two-year period would give ministers and bosses time to rethink the wholesale energy market, including measures such as unlinking electricity prices from gas prices.

If the fund were to cover all 22 million households on default tariffs, it would need about £50 billion from banks. If it were to cover only the most vulnerable, it would still require more than £20 billion.

Mr Anderson first mentioned the idea at a Commons committee hearing on the energy crisis in April. Then-chancellor Rishi Sunak took a different route, announcing a £15 billion cost of living support package that included a £400 energy discount for all households.

ScottishPower and Eon, which is run by Michael Lewis, raised their revived idea at last week’s meeting with Johnson and Zahawi. The boss of another supplier who was there said: “It’s got tremendous merit. I looked around the room and no one was jumping in to disagree.”

Leave a Reply

Your email address will not be published. Required fields are marked as *

This site uses Akismet to reduce spam. Learn how your comment data is processed.