Energy regulator Ofgem says gas crisis not its fault

The head of Ofgem has rejected claims from the industry the current energy crisis represents a failure to adequately regulate the market.

Six suppliers have gone bust recently, leaving about 1.5 million customers facing higher bills, with more firms expected to fold.

Ofgem boss Jonathan Brearley, told the BBC: “No-one could have predicted the kind of gas price rises we have seen.

“In a situation like that any market would be under strain.”

Gas prices are up four-fold, Mr Brearley said.

However, his view has little support from senior executives in the industry who have told the BBC the regulator knew full well that many smaller suppliers would not be resilient in the face of rises that should have been part of the regulator’s stress testing of the sector.

The boss of the UK’s fifth largest energy provider, Scottish Power, said the government was essentially asking larger providers to weaken their own financial position by shouldering billions in additional cost to provide these customers with energy that costs more to buy than they are allowed to sell it for under a government-imposed retail price cap.

Ofgem insists its primary concern has been protecting consumers, but that promise sounds slightly hollow when millions of customers face being moved to higher tariffs from bigger suppliers and the cost those larger companies incur from taking on new customers will be added to all consumers bills through an industry wide levy.


Larger suppliers, including Centrica owned-British Gas, have agreed to take on hundreds of thousands of marooned customers, but expect the cost of doing so to be recouped in a mechanism that Ofgem described as “tried and tested” but which bigger companies say is not designed for the mass failures we are now seeing.

The Ofgem boss admits that the energy cap (£1,277 for a dual fuel household with average energy consumption) which limits the ability of companies to pass on higher wholesale costs to retail customers, is likely to rise again when it is reset in April 2022 after a 12% rise due to take effect at the end of this month.

Industry sources also agree that many of the larger companies may be prepared to take on new customers not only because the retail price cap will inevitably rise, but also because the new customers they acquire will be “stickier”. This means they will be less likely to switch in future given a lack of confidence that cheaper suppliers can be relied upon in the future,

The received wisdom and advice of the last ten years to continually switch suppliers now looks less persuasive.

Ofgem’s Mr Brearley insists he wants a competitive market in the future. Critics argue that it presided over a market that it knew would collapse in a gas crunch – resulting in fewer companies and meaning a less competitive market.


New UK rules will save Brits £75 a year on energy bills

The UK government said it will implement tighter rules for how much energy white goods like washing machines and fridges use, helping save Britons £75 ($104) a year on their energy bills.

The move comes at the same time as 15 million UK households are expected to see their energy bills rise more than £90 after Ofgem lifts the price cap in about three weeks’ time.

The new cap will come into force from 1 April this year. This means that for six months from April, the price cap will increase by £96 to £1,138 for 11 million customers on a standard dual-fuel energy tariff, and by £87 to £1,156 for 4 million prepayment meter users.

Meanwhile ministers are set to introduce “tough new rules” for electrical products to tackle ‘premature obsolescence’ — a short lifespan the government said is deliberately built into an appliance by manufacturers which leads to unnecessary and costly replacements for the consumer.

From this summer, manufacturers will be legally obliged to make spare parts for products available to consumers for the first time, so that electrical appliances can be fixed easily.

The move is expected to extend the lifespan of products by up to 10 years, “preventing appliances ending up on the scrap heap sooner than they should and reducing carbon emissions at the same time,” the Department for Business, Energy & Industrial Strategy said in a statement.

The UK generates around 1.5 million tonnes of electrical waste every year, it said.

The changes will set higher energy-efficiency standards for electrical products which will save consumers an average of £75 a year on energy bills.

They will also cut 8 mega tonnes of carbon emissions in 2021 by reducing the amount of energy products consume over their life-time.

Meanwhile, from 1 March, new energy labels have also been introduced which simplify the way energy efficiency is displayed on a new scale from A-G.

“Now the UK is an independent nation outside the EU, the EU emblem on energy efficiency labels has also been replaced with the Union Flag,” the government said.

Climate change minister Lord Callanan, noted that “the new energy labels we have introduced this week will help consumers make more informed decisions about how eco-friendly one smart TV or dishwasher is over another, helping us reduce our carbon footprint and build back greener.”

Head of International Collaboration at Energy Saving Trust, Emilie Carmichael, said: “Simplifying the way energy efficiency is displayed on labels will help consumers to make more informed choices to reduce their energy consumption and bills. Equally, every small step that consumers take in choosing the most efficient appliances will help the UK in reaching its net zero targets.”

In November last year prime minister Boris Johnson set out his ten point plan for a green industrial revolution.

Covering clean energy, transport, nature and innovative technologies, Johnson said his blueprint will allow the UK to eradicate its contribution to climate change by 2050, particularly crucial in the run up to the COP26 climate summit in Glasgow next year.



Queen’s property chief delays sale of Scottish seabed windfarm plots

The Queen’s property manager in Scotland has delayed the auction of Scottish seabed plots for windfarms after runaway bids for leases in England and Wales handed the Queen and the Treasury a multibillion-pound windfall.

Crown Estate Scotland paused its auction in order to carry out a review of the process after the “unprecedented” bidding in an auction for England and Wales lease options last week reached record highs.

The Queen and the Treasury could share a windfall of up to £9bn over the next decade from the England and Wales auction after energy companies including BP offered to pay five times more than expected for the option to build new windfarms.

Crown Estate Scotland decided with ministers in the Scottish parliament that it would be “sensible” to undertake a six-week review of the structure for its own auction to ensure it secures “a fair price” for the seabed sites along the Scottish coast.

Many within the renewable energy industry have blamed the structure of the Crown Estate’s auction for allowing aggressive “closed envelope” bids from oil companies to skew the market value of the seabed lease.

BP took its first step into the UK’s offshore wind sector during last week’s auction with bids for two windfarms worth 15 times the rate paid by developers in the past, raising concerns within the industry that the rocketing seabed prices would inflate the cost of reaching the UK’s climate targets.

Energy executives have warned that the costs would ultimately mean higher energy bills, and lower returns for green investors. The UK government hopes to build enough offshore windfarms to power every home in the UK by 2030.

Crown Estate Scotland manages the Queen’s property, but unlike the Crown Estate – which manages property in the rest of the UK – it does not return its profits to the Treasury or the Queen. Instead, the revenues are handed to the Scottish Consolidated Fund, which in turn finances the Scottish government.

The review will conclude on 24 March, but Crown Estate Scotland has not set a new date for the start of the auction, which was due to begin next month.

Amanda Bryan, the chair of Crown Estate Scotland, said the “unprecedented outcome” of the auction for England and Wales “has, overnight, changed the market dynamics around offshore wind leasing, and could have significant implications for offshore wind development in Scotland”.

The Crown Estate’s auction for seabed plots in England and Wales guaranteed the Treasury and the monarch total payments of £879m a year from windfarm developers, for up to 10 years. This would hand the Queen a share worth close to £220m a year to run the official royal household and pay for repairs to Buckingham Palace.

Roseanna Cunningham, the Scottish government’s cabinet secretary for environment and climate, said: “In light of the significant changes that we are now seeing in the wider UK offshore wind market, ministers have agreed with Crown Estate Scotland that it would be sensible to review our leasing process.”

British energy suppliers to begin recouping COVID-19 costs from April – regulator

LONDON (Reuters) – British energy suppliers will be able recoup some of their costs relating to the coronavirius pandemic from April, the regulator said on Tuesday, a move that will increase electricity bills for millions of Britons.

Government measures over the past year to control the pandemic have shut down much of the economy and led to job losses and an increase in the number of people struggling to pay their energy bills.

“We have concluded that it’s in customers’ interests to allow suppliers to start to recover some additional costs related to COVID-19 from April,” Ofgem said in a statement.

A cap on electricity and gas bills came into effect in January 2019 and was a flagship policy of former British Prime Minister Theresa May to end what she called “rip-off” prices.

Ofgem sets its price cap using a formula based on supplier’s costs such as wholesale gas and electricity prices, environmental levies and costs to use and maintain the country’s energy networks.

But the next cap level, to be announced on Feb. 5 and to come into effect from April, will also include a provision of 23.69 pounds ($32.42) per customer due to coronavirus-related costs, Ofgem said.

The extra allowance would “account for the additional bad-debt costs incurred by suppliers as a result of the COVID-19 crisis,” Ofgem said.

($1 = 0.7307 pounds)

(Reporting by Susanna Twidale; editing by Jason Neely)


Elexon proposes reforms to System Operator roles and code arrangements

lexon has set out options for a single energy code body to work alongside a reformed System Operator (SO) in their new policy, ‘Reforming the System Operator Roles and Code Arrangements’. This approach will allow better management of the energy system on the road to net zero.

Elexon has put forward options for reforming gas and electricity system operation and the energy codes in tandem so that ‘once in a generation’ changes can be made to how central services for the energy system are delivered.

Elexon initially outlined its thinking on reforms at its annual seminar last year.

Ofgem has recommended to the Government that an independent body, fully separated from National Grid, be created to carry out the electricity SO role and lead the path to net zero.

About the current roles
Currently the electricity and gas SO roles are carried out by National Grid ESO and National Grid Gas. The BSC is one of 11 energy codes across the energy sector managed by six different organisations. Major changes to the codes can take years to be implemented, which does not lend itself to making fast, widespread, cross-fuel changes to support the energy transition to net zero.

Advantages of a new ‘Market Operator’
Elexon believes that the gas and electricity system operators could be merged, and that a new ‘market operator’ could be set up as a single independent body managing all of the energy codes.

The advantages of this include:

a co-ordinated ‘whole system’ approach to gas and electricity system operation, which will support major changes including heat decarbonisation and electric ‘vehicle to grid’ schemes
faster, more co-ordinated changes to energy code rules aiding in the delivery of net zero
greater ability to make quicker and more widespread changes to commercial agreements across the energy sector
a simpler set of code arrangements for energy companies to manage and engage with
Download the policy
Reforming the System Operator roles and code arrangements
Alternative options
An alternative option is for a single body to carry out gas and electricity system operation, together with management of all energy codes. Elexon believes that this would be more complex and harder to deliver compared with a merged System Operator working alongside a Market Operator.

Views of the Elexon CEO
Elexon’s Chief Executive, Mark Bygraves, said:

“The scale of change needed across the energy sector to achieve net zero is vast. Elexon has been advocating consolidation of the energy code arrangements for a number of years and we believe there is now a golden opportunity for holistic reform of the code and system operation arrangements.

“We welcome the Government’s White Paper and we want to contribute to the reform process that follows it. We believe that the options we have set out are an ambitious, but achievable, set of changes which the Government could consider as part of the next steps.”

Next steps
Following the Energy White Paper, published in December, it is expected that the Government will consult later this year on energy code governance arrangements, and review the organisational structure for the Electricity System Operator (ESO).

Energy white paper: Powering our net zero future


Call for governments to work together to ‘kick start’ energy revolution

New funding needs to be established by the UK and Scottish governments to kick start a “community energy revolution” if climate change targets are to be met, a major new report has claimed.

The report by WPI Economics and SP Energy Networks calls for the UK and Scottish governments to collaborate to support community groups who want to generate their own energy.

But the report comes as the two administrations are at loggerheads over the COP26 climate conference due to be held in Glasgow later this year.

The Future of Community Energy document maps out the benefits the sector could deliver if given support, suggesting that over the next decade the number of community energy organisations could rise to around 4,000 across the UK – bringing a possible £1.8bn boost to local economies and creating over 8,000 jobs.

The schemes could also play a key role in meeting climate change targets by saving 2.5m tonnes of carbon emissions, while community solar panels or wind turbines could power up to 2.2m homes across the UK, and cut energy bills of households involved by up to £150m a year. A Citizens Advice Scotland report has found that one in eight Scots say their energy bills are unaffordable.

According to the report, the government should establish a national community energy strategy with a community energy fund; create new, regional funding streams; and give greater support and resource to groups who want to set up schemes.

Frank Mitchell, chief executive of SP Energy Networks said the report showed “just how much potential there is within our communities in our drive to a zero- carbon future, lowering emissions with the additional benefit of driving up skills and jobs across the UK.”

Last week MSPs on Holyrood’s economy and energy committee were told that more investment was needed if a broader range of people were to benefit from the decarbonisation of energy. A recent Climate Emergency Response Group report also said the Scottish Government needed to generate public and private investment of between £1.8bn and £3.6bn a year, to achieve its carbon emissions goals by 2045.

Community and local energy schemes are being encouraged as a way to increase renewable energy production, taking strain off the national grid, and creating new revenues for local areas. Today the Scottish Parliament also agreed to give rates relief to district heating schemes to encourage more be established.

Mr Mitchell said: “The report also shows what might be possible by highlighting the innovative efforts of communities – notably in Scotland and Wales– where sustained government support and a strong backing from third sector organisations has enabled local energy to lead the way, not only in a UK context but internationally as well.”

He added: “But we’ve only just scratched the surface. Communities across the UK increasingly want to generate their own, low carbon power. As the provider of the energy networks that make this possible, SP Energy Networks is committed to doing more. But we need government and regulators to allow us to do so.

“It is time for communities to be given a stronger voice in how their areas reach Net Zero. And as this report makes clear, we need new funding streams and reduced regulation in licensing planning to meet this vision”.

Scotland’s Energy Minister, Paul Wheelhouse, said: “Our support for community energy is beyond question – indeed it is internationally recognised. We had a target for 500MW by 2020 which we have exceeded by far, and indeed we voluntarily increased it to 1GW for 2020 and 2GW for 2030.

“Progress has been good against higher target. To date, there are more than 700MW of community and locally owned projects installed, with a similar quantity in the pipeline, but we have been undermined by removal of Feed In Tariffs by UK ministers and have urged them to reconsider reinstating them.

“We have put in place Non Domestic Rates reliefs for community hydro and wind projects and continue with CARES support, but UK ministers ultimately control the ‘route to market’ and have withdrawn any subsidy for onshore wind. We continue to explore and have been encouraging shared revenue models as a means of increasing community involvement in larger projects.”

He added: “We welcome this report and SPEN’s growing interests in community energy. Many of the recommendations included in this report are similar to what we have recently consulted on in our draft Local Energy Policy Statement, for which SPEN submitted a response.

“We are currently reviewing the responses to the consultation with the intention of publishing a final statement, including a delivery framework, in the spring.”

SP Energy Networks said it would launch an “educational toolkit” to provide communities with the information needed to get schemes off the ground and connect to the grid.


Germany’s RWE to cut one in three jobs in $2.9 billion coal exit deal

FRANKFURT (Reuters) – RWE (RWEG.DE), Germany’s biggest power producer, will cut about 6,000 jobs, or nearly a third of its current workforce, by 2030 as the country moves to phase out brown coal as an energy source, the company said on Thursday.

Germany’s exit from the coal industry marks the second major upheaval for RWE in as many years following the breakup of the .company’s former subsidiary Innogy (IGY.DE) with peer E.ON (EONGn.DE).

It also accelerates RWE’s transformation into a pure renewables group, which – along with its low valuation – could turn it into a takeover target, Goldman Sachs said last week.

RWE said it would receive 2.6 billion euros ($2.9 billion) in compensation from the government over 15 years to soften the blow to its business.

However, this was less than the 3.5 billion euro hit it estimated it would take, even excluding the expected loss of profits, it added.

“RWE stretches to the limits of what is possible,” Chief Executive Rolf Martin Schmitz told journalists on a call. “And we will bear the majority of the burden the German government demands for the coal phase-out.”

After months of wrangling, the German government early on Thursday agreed a compensation plan with energy companies, affected regions and workers to pay for the accelerated shutdown of coal-fired power stations by 2038.

RWE said it expected special writedowns of half a billion euros on power plants and open-cast mines as a result of the agreement. About 350 million euros will be set aside for personnel measures.

Shares in the group were 2% higher at 1508 GMT, the second-biggest gainers among German blue-chips, having earlier touched their highest since Sept. 25, 2014 as traders welcomed the clarity after months of wrangling.

“RWE’s agreement with the German government lifts an important overhang,” Bernstein analysts wrote.

“Some investors were cautious on whether RWE would be able to receive adequate compensation for early mine closures, given the past track record of negotiations with the government.”

Schmitz denied speculation that RWE may now seek to sell its coal assets, adding the firm, which is also Europe’s third-largest renewable group after Iberdrola (IBE.MC) and Enel (ENEI.MI), would stand by its employees.

“There are no such considerations and no talks on the matter,” Schmitz said.

The company has in the past denied claims that its coal-fired plants are loss-making, saying it would not run them unless they generated cash.

Dave Jones, European electricity analyst at Sandbag, a non-profit think-tank, said that it had been clear that coal would have to be phased out even before the Paris Agreement to combat climate change was struck in 2015.

“It’s a pertinent lesson for all other countries: deal with coal now, and save yourself a big bill in the future,” he said.


Targeted Charging Review: Decision and Impact Assessment

We are modernising electricity network charging through two closely-linked reviews: 

  • The Access and forward-looking charges review is looking at the ‘forward-looking charges’ which sends signals to users about the effect of their behaviour, encouraging them to use the networks in a particular way; and
  • The Targeted Charging Review (TCR) has examined the ‘residual charges’ which recover the fixed costs of providing existing pylons and cables, and the differences in charges faced by smaller distributed generators and larger generators (known as Embedded Benefits).

Today we are publishing our final decision on TCR. We have decided that:

  • Residual charges will be levied in the form of fixed charges for all households and businesses.
  • We will be removing liability for the Transmission Generation Residual from Generators and making changes to one of the ‘Embedded Benefits’ received by Smaller Distributed Generators in relation to balancing services charges.

The decision document and Impact Assessment were updated on 18 December to correct a further error in the data provided to us by our consultants. This primarily affects table 1 of the Impact Assessment and tables 6 and 7 in the decision document. This affects the indicative charges for LV HH, HV and EHV consumers.

The decision document and Impact Assessment were updated on 9 December to correct some data provided to us by our consultants. This primarily affects table 1 of the Impact Assessment and tables 6 and 7 in the decision document. This affects the indicative charges for the North East Region only and is for LV HH and HV consumers.

Further information

For media, contact:

Stephen Roberts, 07990 139516

Media out of hours mobile: 07766 511470

General enquiries (non-media)

If you are an energy customer looking for help and advice, including complaints about energy firms, please see our Household gas and electricity guide. Citizens Advice also provide a free, impartial helpline service across a range of issues on 03454 040506.

We also regularly share news and post general advice to help consumers get the most out of their energy services via our @Ofgem twitter and Facebook pages.If you have an enquiry or complaint relating to Ofgem’s policies or functions, contact us at consumeraffairs@ofgem.gov.uk or on 020 7901 7295.

For all other non-media related enquiries, please visit our Contact us page.

About Ofgem

Ofgem is the independent energy regulator for Great Britain. Its priority is to make a positive difference for consumers by promoting competition in the energy markets and regulating networks.

For facts, figures and information about Ofgem’s work, see Energy facts and figures or visit the Ofgem Data Portal.


Consumer Perceptions of the Energy Market Q3 2019

Publication date2nd December 2019Information types

  • Charts and data
  • Reports and plans

Policy areas

  • Domestic consumers
  • Electricity – retail markets
  • Gas – retail markets

Related LinksRelated Links

Ofgem in conjunction with Citizens Advice uses a quarterly survey to monitor domestic consumers’ perceptions about the quality of service in the energy market. Ofgem uses this information to support its monitoring and compliance activities.

The survey commenced in Q4 2018. This is the fourth wave of the study, conducted in Q3 2019.

The survey covers a range of topics including satisfaction with energy suppliers, perceptions about energy tariffs, use of price comparison websites and awareness and understanding of the default tariff price cap.  

The survey is conducted by Accent Research on behalf of Ofgem and Citizens Advice. Each quarter we survey approximately 3200 household energy bill payers across Great Britain.

read more here: https://www.ofgem.gov.uk/publications-and-updates/consumer-perceptions-energy-market-q3-2019

Please contact consumer.first@ofgem.gov.uk for further details.


Npower loses over 260,000 customers in the third quarter of 2019

Big Six energy supplier Npower lost 261,000 customers in the third quarter of 2019, as large providers continue to haemorrhage clients to smaller challenger brands.

The figures take total customer losses for the year for the company, which is owned by German power giant Innogy, to 447,000.

Npower also posted a nine-month operating loss of €167m (£142.1), with expected losses for the whole year expected to hit €250m.

Innogy said that the decline was mainly driven by the introduction of the energy tariff price cap in the UK.

Chairman and chief executive Johannes Teyssen recently described Innogy’s loss-making UK retail operation as “an open wound that is bleeding profusely.”

Npower, which is Innogy’s retail arm, was recently bought by fellow German firm E.on, which warned that it would not tolerate a loss-making business for long.

According to energy market regulator Ofgem, profits at the UK’s six-largest energy suppliers shrunk by over a third last year.

Ofgem’s State of the Market report also found that 40 per cent of all electricity switching between July 2018 and June 2019 came from customers leaving Big Six suppliers in favour of smaller ones.

However, a report earlier this week found that last month 100,000 customers moved from small or medium sized firms to Big Six companies, suggesting the major players may have begun to turn the tide.

Peter Earl, head of energy at comparethemarket.com, said: “The Big Six have snatched the momentum from their smaller and nimbler energy rivals – but whether this is a longer-term trend or merely a blip remains to be seen.”

Innogy slashed its overall outlook on the back of Npower’s performance, saying it now expects retail profit to run between €200m and €300m, a €100m reduction on its previous range.

The news caps off a tough twelve months for the company, which last December was forced to call off a planned merger with SSE’s retail arm, which was subsequently bought by challenger brand Ovo.