Energy price cap rise delivers a sharp shock – but what can be done to address the crisis?

By Douglas Johnson & Beth Park

In another blow for households comes today’s announcement from Ofgem that the energy price cap will increase by £693 from April. This means a record increase in household bills of 54% for approximately 22 million customers.

The change was calculated by Ofgem based on costs faced by suppliers, who are increasingly under pressure from surging wholesale prices in recent months. According to the Resolution Foundation, it will put more than a quarter of households into fuel poverty, adding to an overall cost of living squeeze for households who are also facing higher food prices, a hike in national insurance, and a 0.25% rise in interest rates to 0.5% - also announced today.

So, what can be done to help, and how will the Government intervene? In the short term, the Chancellor has announced a package of loans, subsidies, and rebates to reduce the impact. State-backed loans will give all homes a £200 discount on their energy bills, which will automatically be repaid from people’s bills in equal £40 instalments over the next five years.

Sunak will also give people in England in council tax bands A to D a £150 council tax rebate in April, which will benefit 80% of council taxpayers, and is providing £150m to local authorities in England to help poorer households. The devolved administrations will also receive £565m to offer similar levels of support.

But the inevitability is that energy prices will rise significantly for most, and there is a worry that the short-term solutions offered by the Chancellor will only be a sticking plaster. Indeed, Labour’s Shadow Chancellor Rachel Reeves criticised the £200 discount on energy bills as a "buy now pay later scheme that loads up costs for tomorrow".

In the long-term, given our reliance on imported gas, we must look at how our energy is generated and stored in the UK and ultimately at changing public perceptions, which so often lead to renewable energy projects we so desperately need being refused.

The most recent BEIS Public Attitudes Tracker, released on 16 December 2021, recorded 87% support for use of renewable energy and that 40% of respondents were worried about their energy bills. However, our experience across more than two decades of engaging with communities in support of new proposed energy generation suggests the equation becomes more complex when the required development is proposed locally. Many people are capable of recognising the need for renewables in principle, but vociferously oppose it locally. 

There are some clear reasons for the gap between the 67% of Britons who told Yougov they would support renewable development near them and the lack of actual support on the ground. The fact that major developments generally supply electricity direct to the grid, for example, makes the link to prices less tangible – you don’t see the money come directly off your bill. The complexity of the reasons behind why energy prices fluctuate compounds this. It’s notable, for example, that media coverage of price rises often focuses on the impact of low wind levels. 

At the same time, people’s views on local development take into account more than just potential benefits – many will balance these against what they perceive to be the adverse impacts. There is a strong risk that a lack of clarity over the direct benefits of development to residents will tip the balance towards concern about the impacts.

In the interest of everyone, developers and decision-makers need to consider what they can do to address perceptions that new renewables generation trades ‘local pain’ for ‘national gain.’ It will be up to communications experts like us to help support this process, otherwise sky-high energy bills could become a painful norm.