The head of Scottish Power has said Britain’s gas crisis will keep driving energy bills higher until 2023, and could leave only five or six of the strongest suppliers standing.
Keith Anderson, chief executive of Scottish Power, said the UK’s record energy prices could mean households faced another 18 months of rising bills and that even well-run energy suppliers could go bust.
The only energy companies able to survive a fresh £4bn blow to the energy supply market would include a small number of players backed by major multinational firms, he said, reversing years of growing competition in the market.
The UK’s energy market has increased from the big six suppliers that have dominated it since privatisation, including Scottish Power, to about 70 companies at the start of 2021. But in the past six weeks rocketing energy prices have caused 13 suppliers to go bust, leaving more than 2m homes without a supplier.
“And in that time nothing has changed,” said Anderson. “I’ve seen nothing about what new regulation might look like. I’ve seen nothing about protecting vulnerable customers and the fuel poor.”
Scottish Power has called on the government and the regulator to prevent an energy market cull by adjusting the price cap to make it easier for suppliers to pass on the fast-rising energy costs. At the same time, Anderson said the government should put in place a social energy tariff to protect households that could not afford the steady increase in bills.
Consumers are facing one of the steepest bill increases on record this winter after the regulator lifted the maximum level of its energy price cap from 1 October to reflect surging wholesale market prices.
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But energy bosses fear that the cap, which changes every six months, will not keep pace with the fast-rising market and could cause more suppliers to fold unless they have the financial muscle to shoulder the costs before the next price rise.
“Customers are going to get a huge increase in their bills next April, and in October, and I suspect that they’ll see another increase in their bills six months later,” Anderson said. “Moving the energy price cap every six months is just completely hopeless. We need it to start changing more frequently.”
Energy suppliers can expect a double blow as millions more people take up a standard price-cap tariff at the end of their fixed rate deal, rather than choose one of the new fixed tariffs that have surged in price. Up to 2m homes are expected to move to a price cap tariff in the coming months, each representing an extra cost of £1,000 to their supplier, which could cause unexpected costs of up to £4bn over the next year.
“All of that financial stress will hit the companies left in the market. That’s why we think there’s a significant risk that the market returns to five or six companies. It will only be the biggest and the strongest which can survive this pressure,” he said.
Anderson said a “reflective and flexible” price cap should change “at least every quarter” to stem the number of energy suppliers leaving. This would help pass on a fall in energy prices to customers sooner, he said.
For consumers who cannot afford steady price hikes the government should offer a social energy tariff to protect a growing number people from fuel poverty.
Ofgem said it was working closely with government and the energy industry to “ensure that customers remain protected”.
“We have robust systems in place to ensure this,” the regulator said. “The price cap will remain in place this winter to protect millions of people from the sudden increases in global gas prices. We are also working with government to ensure that we have a sustainable energy market that works for all customers.”
As well as supplying household energy, Scottish Power runs energy networks and invests in renewable energy. Its owner, Iberdrola, said this week that Scottish Power’s renewables division would pour £6bn into a windfarm complex in the North Sea off the east coast of Britain, its biggest project investment worldwide.