Where next for Wales’ energy bills?

Poverty Coats on hooks in house next to a radiator with a cup and saucer
Photo by Kübra Arslaner on Pexels
ViewsMay 31st, 2024

In light of last week’s energy price cap announcement, Joel Davies, Policy and Research Officer, considers the outlook for those on low incomes in Wales.

In July the energy price cap is being reduced, with the average yearly dual-fuel bill expected to amount to £1,568. The fall of £122 per year from the previous cap marks the second consecutive quarter where we have seen a reduction in domestic energy costs. While this is welcome news, it is worth the reminder that the average direct debit bill under the cap in the summer before the 2021 energy crisis was £1,084 based on current consumption estimates—almost £500 less. For low-income households, this could easily make the difference between getting by with enough to afford the essentials and falling into serious financial hardship.

High prices and inadequate protections for those on low incomes have inevitably led to increases in debt. Total debt in the domestic energy market has doubled since the beginning of 2021 to £3.1 billion. Suppliers have also failed to keep pace with their responsibility to engage with customers in arrears, such that there are record numbers of people who have not come to an affordable repayment arrangement. Currently, the only real mechanism to recover the costs of bad debt is via uplifts to the price cap on bills paid by those on standard credit or direct debit arrangements, which concentrates pressure on many who are already finding their finances squeezed—and there has been some recognition from Ofgem that a more sustainable arrangement is needed.

Beyond system integrity, failure to stabilise debts can have a devastating human impact; the mental burden can lead to behaviours such as self-disconnection and avoidance strategies, so that debt piles up while the risks of living in a cold and damp home increase.

People in Wales suffer particularly from the injustices of the energy market.

Welsh homes are some of the oldest and coldest in the UK, so many have no choice but to use more energy than those whose houses are better insulated. Standing charges also are higher here than the UK average; in London, the standing charge for electricity is 41p per day. In South Wales it is 63p, in North Wales it’s 67p. This means customers in North Wales have little choice but to spend almost £100 more per year on electricity than those in London, regardless of their actual consumption. This despite Wales being a net exporter of electricity to the grid—in 2022 Wales produced over twice as much as it consumed—and despite the fact that many people live their lives in the shadow of massive generation and transmission infrastructure.

More prices rises expected this winter.

There are indications that the latest fall in bills may be the last for some time. Cornwall Insight predicts that the average bill will rise to £1,761 by winter and remain at a similar level into 2025 due to volatility in the wholesale gas price. In addition, the regulator has acknowledged that the costs of building energy infrastructure towards net zero goals will also contribute to keeping bills well above pre-crisis levels for a decade or more.

Given the bleak outlook, it is crucial that those on the lowest incomes are protected from these high costs. Not to do so would be a moral and economic failure, given that affordable access to energy is foundational for health and an adequate stake in society. The regulator has indicated that it supports targeted help for low-income households and is concerned to find the fairest solutions. But it has been hesitant to act on the injustice of standing charges due to fears about the distributional effects on some low-income consumers. And despite increasingly widespread calls for genuine social tariffs, we are yet to see significant moves to scope their potential.

It’s clear that people on low incomes will continue to be pushed into poverty by the costs of essential energy under current arrangements. The energy market needs to be significantly overhauled, and the next Westminster government must engage seriously and rapidly with the problem.

One Response

  1. Karen Cherrett says:

    I have just been appointed to the board of National Energy Action based in Wales. Should we grab a coffee to discuss mutual interests of energy poverty in Wales?

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