One of Britain’s largest energy companies, the boss of one, has demanded that the price caps on energy be removed.
Keith Anderson, Chief Executive of Scottish Power said that the recent energy crisis exposed fundamental flaws in how the energy market is structured.
He said there were serious failings by Ofgem.
Regulators claimed that the price cap helped keep costs down for millions of households.
Anderson stated that while the price cap is a politically popular concept, it has led to dozens of company failures.
Due to six-fold increase in wholesale gas prices this year, businesses had to pay far more for their fuel than they were permitted to sell.
He stated that there was a “fixation” about trying to increase competition and attract more companies to the sector.
But it was too much. There were a lot of poorly-run, small businesses that entered the retail industry. It has been shown that this business is very risky.
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He stated that the regulation asking companies with good management to deal with millions of customers belonging to companies lacking in resources is putting a tremendous burden on the industry, which will cause prices to go up for the next twelve to 18 months.
“Every customer taken on at the price cap means £1,000 of cost,” he said.
“We estimate the total cost to the industry of between £4bn and £5bn.
The risk is you’ll end up back at the big six or big five.”
He said that the one-size-fits all cap would be regressive as it failed to even protect vulnerable customers. These people spend an excessive amount of their household income on energy.
His solution was to abolish the cap and create a tariff that is only available for those in fuel poverty.
Customers with more money would have to pay higher prices, but this would allow for a progressive approach in regulating the sector.
Anderson was critical of Ofgem’s competence, claiming that the regulations weren’t up to the task.
He said, “The regulator hasn’t kept up with the market.”
Ofgem said that the price cap was responsible for protecting millions of families from rising gas prices.
It acknowledged, however that regulations will need to be changed.
With industry and government partners, Ofgem will be required to develop an energy market more resilient to shocks in the future.
According to it, “This will likely mean a regulatory approach that is more focused on the business models and the risks they face when entering or operating in our energy market.”
Anderson refuted the idea that Anderson was advocating an “oligopoly” with no price control in which profit margins are allowed to rise and consumers were not inclined to change because of smaller suppliers going bust.
According to him, removing the cap wouldn’t result in profiteering because a competitive market with 10-15 well-run businesses would offer good value and money.
Anderson pointed out that there would be still more competitors in the market than what you find in supermarkets or banking.
Although he acknowledged that the transition to a net-zero economy would cost hundreds of billions of dollars, which could end up in our taxes or bills, he said it would instead be spread out over many decades.
He stated that it was expected to generate economic activity in the UK which would create thousands of jobs.
His comments come the day after Scottish Power confirmed it was investing £6bn in three offshore wind projects.
This piece was at the center of a series of government investments that were announced in London at a global summit on investment. It was followed by an event at Windsor Castle where business leaders could be greeted by the prime minister as well as the Queen.
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