ClearOne, the Salt Lake City, Utah-based provider of conferencing, collaboration, and network streaming solutions, will host several AVIXA RU-credit courses for August 2022.
ClearOne University’s August 2022 schedule boasts a variety dedicated instructor-led sessions, giving participants the opportunity to familiarize themselves with the latest ClearOne solutions, ask questions and get feedback from product experts in real time.
The training schedule includes classes on CONVERGENCE AV Manager Certification, UNITE 200 Pro Camera Training, AV Conferencing Certification, Advanced Pro Audio Conferencing Certification, Design Library Training, CONSOLE AI Software Configuration Certification and Pro Audio Conferencing Certification.
The courses are now open for registration. The schedule of courses and times is as follows:
CONVERGENCE AV MANAGER CERTIFICATION
UNITE 200 PRO TRAINING
DIALOG 10 USB TRAINING
AV CONFERENCING CERTIFICATION
ADVANCED PRO AUDIO CONFERENCING CERTIFICATION
DESIGN LIBRARY TRAINING
CONSOLE AI SOFTWARE CONFIGURATION CERTIFICATION
PRO AUDIO CONFERENCING CERTIFICATION
There was an urban legend back in the days of mechanical electricity meters, that there were “lucky” appliances that once plugged in would make the meter go backwards. It probably has its origin in the interaction between a strongly capacitive load and the inductance of the coils in the meter but remains largely apocryphal for the average home user. That’s not to say that a meter can’t be fooled into doing strange things though, as a team at the University of Twente have demonstrated by sending some more modern meters running backwards. How have they performed this miracle? Electromagnetic interference from a dimmer switch.
Reading the paper (PDF link) it becomes apparent that this behavior is the result of the dimmer switch having the ability to move the phase of the current pulse with respect to the voltage cycle. AC dimmers are old hat in 2021, but for those unfamiliar with their operation they work by switching themselves on only for a portion of the mains cycle. The cycle time is varied by the dimming control. Thus the time between the mains zero-crossing point and their turn-on point is equivalent to a phase shift of the current waveform. Since electricity meters depend heavily upon this phase relationship, their performance can be tuned. Perhaps European stores will now brace themselves for a run on dimmer switches.
If you’re curious about these old-style dimmers, take a look at some of their basic functionality.
Thanks [Dorus] for the tip.
Latest news on the UK energy market, including details of the Ofgem price cap, tariff rate increases, company information and regulatory developments
Analyst Cornwall Insight has raised its forecast for October’s price cap by £200, saying it will hit £3,582 a year for a typical household with average consumption. That’s an 80% increase (£1,611) on today’s cap of £1,971.
Ofgem, the energy market regulator, will confirm the level of the October cap on 26 August. But the certainty of a huge increase is prompting calls for urgent government action to help households meet what will, for many, be unaffordable charges.
The figure for January 2023, when the cap will be adjusted again, makes even starker reading, coming in at £4,266. That’s £650 more than Cornwall’s previous estimate.
The steep increase is blamed in part on high wholesale prices for gas and electricity. Ofgem hikes the cap to enable energy suppliers to pass on increased market costs.
Bills will also go up sharply following a change to Ofgem’s cap-setting methodology to allow energy companies to recoup additional costs associated with guaranteeing future supplies.
Cornwall says the cap will rise again in April 2023 – to £4,423 – before falling to around £3,800 in the second half of next year. That’s still substantially higher than this October’s figure.
Dr Craig Lowrey at Cornwall Insight said: “These new forecasts for the January to March 2023 quarter further underline the need for support for households who will struggle to pay their energy bills this winter.
“An increase of over £650 in the January predictions comes as a shock. The cost-of-living crisis was already top of the news agenda as more and more people face fuel poverty, this will only compound the concerns.”
Dr Lowery said the timing of the change to Ofgem’s methodology is unfortunate but is necessary to help prevent more energy companies going out of business, which would trigger additional costs for consumers. Around 30 energy suppliers have gone bust since the start of 2021.
He argues that the existence of cap itself should be challenged: “Rather than critiquing the methodology of the cap, it may be time to consider the cap’s place altogether. After all, if it is not controlling consumer prices and is damaging suppliers’ business models, we must wonder if it is fit for purpose – especially in these times of unprecedented energy market conditions.
“Right now, the current price cap is not working for consumers, suppliers, or the economy.”
Cornwall has added its voice to those demanding government action to help beleaguered households: “It is essential that the government use our predictions to spur on a review of the support package being offered to consumers. If the £400 [to be deducted from all electricity bills in stages between October and March] was not enough to make a dent in the impact of our previous forecast, it most certainly is not enough now.”
Rishi Sunak MP, who is vying with Liz Truss MP to be elected leader of the Conservative Party and thus the next Prime Minister from 5 September, is reported as saying he will increase the £400 payment if victorious.
Ms Truss has yet to set out her policy on the matter, although she has indicated that she would introduce tax cuts to help with the cost of living crisis.
Opposition MPs have called for greater taxation of energy company profits to fund relief measures for the most vulnerable. Some are also calling for VAT and green levies to be removed from energy bills.
Ed Davey, leader of the Liberal Democrats, says the government should scrap the October price cap increase altogether and fund the £40bn cost via windfall taxes and general taxation.
Another option put forward by various industry figures and consumer interest groups would be the creation of a ‘social’ tariff targeted at lower income households and those using high amounts of energy to power medical equipment.
This would be priced substantially below the level of the cap and paid for either by levies on other customers’ bills or, again, from taxation revenue.
The maximum energy suppliers can be charged per unit of gas and electricity will be reviewed every three months, rather than every six months, it’s been confirmed.
Energy regulator Ofgem has today officially moved from reviewing its energy price cap from twice a year to four times a year. It says that more frequent updates will reflect movements in wholesale gas and electricity costs faster and more accurately.
The cap will now be reviewed every January, April, July and October.
Warning households of a ‘very challenging winter’ to come, Ofgem said the changes would help to stabilise the energy market and reduce the risk of more energy suppliers collapsing – an outcome it believes would push costs up further.
The current price cap is set at £1,971 per year, based on typical use. The next price cap announcement will be made by Ofgem on 26 August and implemented on 1 October.
Energy market analysts Cornwall Insight predict that the cap could hit £3,359 between October and December – and soar to £3,616 between January and March next year.
It’s thought that more frequent reviews of the cap could lessen the ‘rocket and feather effect’ on energy pricing, where prices are quick to rise in line with wholesale prices, but slow to fall when prices drop.
Ofgem’s chief executive, Jonathan Brearley said: “As a result of Russia’s actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before. And that means the cost of supplying electricity and gas to homes has increased considerably.
“The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now. Today’s changes ensure the price cap does its job, making sure customers are only paying the real cost of their energy, but also, that it can adapt to the current volatile market.”
Responding to the news, Gillian Cooper, head of energy policy at Citizens Advice, said: “Changing to a quarterly price cap should limit the risk of any more suppliers going bust, which is a good thing. But our bills are already incredibly high and still rising.
“The government was right to bring in financial support for people, but it may not be enough to keep many families afloat. It must be ready to act again before winter draws in.
“Ofgem must make sure suppliers are helping customers who are struggling to pay. It should hold energy companies to account so people aren’t chased by debt collectors or pushed onto prepayment meters when they can’t keep up with bills.”
Average household energy bills are predicted to remain at more than £300 a month until at least 2024, according to new predictions.
Energy analysts Cornwall Insight says the default tariff cap will put bills at more than £3,000 a year for at least the next 15 months, reaching as high as £3,649 by next summer.
The firm says continued volatility in the market caused by uncertainty over Russian gas supplies will see the new energy price cap hit £3,359 between October and December, and £3,616 between January and March 2023.
Cornwall Insight’s Dr Craig Lowrey said: “While the government has pledged some support for October’s energy rise, our cap forecast has increased by over £500 since the funding was proposed, and the truth is the £400 pledged will only scratch the surface of this problem.
“A review of delivering support for the next cap periods should be on the top of the to-do-list for any incoming Prime Minister. As our price cap breakdowns show, tinkering with VAT and policy costs will only make a dent in bills, when it is the high wholesale prices behind the increases.”
The new predictions come as oil giant BP second-quarter profits hit a 14-year high of £6.9 billion today.
Commenting on the results, BP’s chief executive, Bernard Looney said: “Our people have continued to work hard throughout the quarter helping to solve the energy trilemma – secure, affordable and lower carbon energy.”
Details of how households across Great Britain will receive a £400 discount on their energy bills under the Energy Bills Support Scheme has been set out by the government.
For customers paying by direct debit, a discount of £66 will be applied automatically to their bills in October and November. From December through to March 2023, this amount will rise to £67.
The discount will be applied on a monthly basis regardless of whether customers pay their energy bills monthly or quarterly, or have an associated payment card. This is to ensure anyone moving home during the period gets the full benefit of the £400 discount.
Households on a prepayment meter will be issued vouchers from October in the first week of each month by text, email or post, using the contact details that have been registered with the energy supplier. However, these customers will need to action the discount at their usual top-up point – such as a PayPoint or Post Office branch.
The discount applies to all households in Great Britain with a domestic electricity meter – including students and other tenants whose energy bills are already factored into the cost of their rent. In these cases landlords must pass on the discount appropriately, in line with rules set down by energy regulator, Ofgem.
Only 1% of households will not benefit from the Energy Bills Support Scheme according to the government – either because they do not have a domestic electricity meter or a direct relationship with an energy supplier, such as park home residents.
It confirmed that these people will receive equivalent financial support on their energy bills – details of which will be announced in the autumn.
Business and Energy Secretary, Kwasi Kwarteng said: “While no government can control global gas prices, we have a responsibility to step in where we can and this significant £400 discount on energy bills we’re providing will go some way to help millions of families over the colder months.”
The government stressed that in all cases, no household should be asked for bank details at any point.
Respected energy market analysts Cornwall Insight are predicting that the energy price cap, currently £1,971, will rise by almost 80% in October to around £3,500 a year for a typical household. The new level will be announced on 26 August.
Wholesale prices – which determine the level of the cap – have increased dramatically in accurate days due to the reduction in supply from Russia to the European Union.
There are fears the cap could rise towards £4,000 in January 2023, stretching household budgets well beyond breaking point for millions. Commentators are calling for increased intervention by the government to help bill-payers meet the mounting costs.
MPs are urging the regulator, Ofgem, to develop a so-called social tariff to make energy affordable for those on the lowest incomes.
Rishi Sunak has pledged to scrap the 5% cost of VAT on household energy bills as part of his campaign to become the new Conservative Party leader and Prime Minister on 5 September.
The former Chancellor said that if the new price cap on energy bills – due to be announced by regulator Ofgem on 26 August and implemented on 1 October this year – exceeds £3,000, he will scrap VAT on energy for the next 12 months, saving the average household around £160.
Mr Sunak has previously opposed calls for VAT to be removed from energy bills, but his supporters deny he is performing a u-turn given the change would be temporary.
The latest estimates from energy analysts, Cornwall Insights, forecast the new cap will stand at £3,244, up from the current figure of £1,971.
The energy price cap refers to the maximum amount that energy suppliers are permitted to charge per kWh of gas and electricity (or the ‘unit rate’) each year – and also incorporates a maximum daily ‘standing charge’ which is the cost of getting the power to your home.
The proposed VAT cut would be in addition to the £400 windfall payment towards electricity bills that Rishi Sunak, as Chancellor, announced in May under the Energy Bills Support Scheme.
The £400 will be automatically added to the balance of every household’s electricity energy account over the six months starting from October. If you are on a prepayment meter, £400 will either be added to your meter balance or paid in vouchers.
A package of other measures aimed at those on means-tested benefits has also been announced (see stories below).
Rishi Sunak’s VAT pledge – the first tax cut he has unveiled in his campaign to become Conservative party leader – would be part of his ‘Winter Plan’ which he says will address inflation and the general cost of living.
Earlier this week, MPs on the Business, Energy, Industry & Science committee were deeply critical of Ofgem’s performance in accurate years, saying the collapse of the energy supplier market (30 companies have gone bust in the past 18 months and there are no tariffs available below the level of the price cap) could have been mitigated through more robust regulation.
The MPs said: “Ofgem has proved incompetent as the regulatory authority of the energy retail market over the last decade. It allowed suppliers to enter the market without ensuring they had access to sufficient capital, acceptable business plans, and were run by individuals with relevant expertise.
“The regulator enabled poorly capitalised suppliers to be overly reliant on customer credit balances and operate with inadequate hedging, leaving the market ill-equipped to absorb wholesale price increases. The rules that were in place were not enforced and Ofgem did not understand the business models of the suppliers it is mandated to supervise.
“The Government prioritised competition over effective market regulation and overlooked Ofgem’s lack of supervision of this essential market.”
Ofgem responded by saying it is working to reform the entire market.
Looking ahead to the impact of the higher price cap, the MPs suggested the introduction of a ‘social tariff’, deliberately priced at less than cost, to help those most in need.
They said: “The Government should consider the introduction of a social tariff for the most vulnerable customers and a relative tariff for the rest of the market.
“The impact of the energy price crisis on households is ongoing and severe, particularly in the context of the cost-of-living crisis, and is likely to cause an unacceptable rise in fuel poverty and hardship this winter. While we welcome the Government’s May 2022 support package, it is no longer sufficient to respond to expected price increases come October.
“The Government must immediately update its support, targeting this at customers who are on low incomes, fuel poor, and in vulnerable circumstances, and develop a scheme to support vulnerable customers to accelerate the repayment of energy debt resulting from this crisis.”
Energy market regulator, Ofgem, has released its analysis of how suppliers adjusted customer direct debit payments earlier this year. Many households saw steep increases, with 500,000 payments increasing by more than 100%, writes Candiece Cyrus.
The review found that:
Of 17 large suppliers in the market, four – Ecotricity, Good Energy, Green Energy UK, Utilita Energy – had moderate to severe weaknesses in their processes and controls.
Ofgem is engaging with these firms to drive “rapid and robust improvements” to processes and a reassessment of customer direct debits where necessary. If these suppliers don’t Boost quickly enough, Ofgem says it will consider enforcement action.
Two firms, TruEnergy and UK Energy Incubator Hub (UKEIH), were found to have severe weaknesses. UKEIH has since ceased to trade, with its customers taken on by Octopus on 9 July. Enforcement action against TruEnergy is being considered.
Bulb, E.ON, Octopus Energy, Outfox the Market, Ovo, Shell and Utility Warehouse were found to have some weaknesses or gaps in their processes that could lead to poor consumer outcomes. Ofgem has started compliance engagement with these suppliers
No significant issues were found at British Gas, EDF, ScottishPower and SO Energy, although Ofgem says it will work with these suppliers for continuous improvement. The firms will be asked to review customer direct debits to ensure they are correct, as an additional assurance for consumers.
The companies involved must lay out their plans for rectifying any issues within two weeks, for Ofgem to approve.
Ofgem can force companies to take action to Boost operations, fine companies and ban them from taking on new customers if adequate improvement has not been made.
Where appropriate, Ofgem expects suppliers to adjust any miscalculations, including making repayments if needed, and consider whether a goodwill payment is warranted.
Households are facing yet more financial pressure following analyst Cornwall Insight’s amended prediction that the Ofgem energy price cap will rise to £3,244 in October, up from its current £1,971 and significantly higher that the £2,980 it mooted last month.
The firm says the cap, which limits how much energy firms can charge for units of energy and standing charges, will rise further to £3,363 in January 2023. It previously forecast the cap to be £3,003 at that point.
The cap is reviewed every six months, and rose to its present level from £1,277 in April. After October’s increase, it will be reviewed every three months to allow greater responsiveness to movements in wholesale energy prices.
The figures used are for the annual cost of energy for a typical household on a standard variable rate tariff paying by direct debit. The cap does not impose a limit on the size of bills, with costs determined by usage.
If Cornwall Insight’s estimates prove accurate, bills will have increased by over 160% in the months between March 2022 and January 2023 as a result of rising wholesale costs (see stories below).
The government has announced a package of measures to help people battle against the cost of living crisis, including cash payments to those on means-tested benefits and £400 off electricity bills for every household in the autumn.
It remains to be seen how accurate political turmoil, including the resignation of Boris Johnson as leader of the Conservative Party and the subsequent leadership election, will affect future plans to tackle high levels of inflation across all sectors of the economy.
The government has included measures for tackling rising energy costs, continuing the rollout of energy smart meters and improving protection against cyber threats on smart appliances, in its Energy Security Bill, which was introduced into parliament yesterday.
The ambition is to generate £100 billion of private sector investment into the energy sector by 2030, with hydrogen, offshore wind and heat pumps being promoted as new sources of energy supply.
Given the government upheaval following mass resignations in the run-up to Boris Johnson’s resignation as leader of the Conservative party, the Bill may be delayed in its passing through Parliament.
The Bill makes provision for the energy price cap to be retained beyond its original end-date of 2023, the aim being to maintain relatively low energy costs for 11 million households on default/standard variable tariffs and four million on prepayment meters.
The cap limits how much energy suppliers can charge households per unit of gas and electricity, along with a standing charge, while reflecting fluctuations in wholesale energy prices.
The last change to the cap was in April, when it soared by 54% to £1,971 a year for households with average energy consumption. For households on prepayment meter tariffs, it rose to £2,017 a year. The increase was the result of higher wholesale prices due to increasing international demand and pressure on supplies because of the war in Ukraine.
Energy analytics firm Cornwall Insight forecasts the cap will hit £3,244 in October and £3,363 in January next year.
Dame Clare Moriarty of consumer advice charity Citizens Advice, supports the price cap extension but said more short term measures are needed to help households with energy costs: “With millions of people already struggling to make ends meet, it’s a relief to see the government extend the price cap beyond 2023.
“Yet much of what we’re paying for our energy is going straight out the window, because so many of our homes are draughty and poorly insulated.
“We’re glad the government is taking a longer-term view on supporting people with energy bills, but it must bring in energy efficiency measures as a matter of urgency, to help families stay warm this winter.”
The new Bill also contains measures to continue the rollout of smart meters to households and small businesses across Britain by the end of 2025. It aims to review suppliers’ installation targets for the last two years of the rollout in 2023, and review the whole smart metering system after 2025.
Smart meters display how much energy is being used, along with the cost, in real-time, allowing consumers to see where they can reduce their energy usage and save money.
Smart meters would also help customers to see the energy they may be saving on time-of-use tariffs, which may be introduced into the UK in the coming months. These tariffs encourage households to use off-peak energy supplies – for instance, to recharge an electric car battery – to benefit from lower prices, and to spread demand around the clock.
The Bill will also help prevent ‘cyber hacking’ of smart appliances such as electric vehicle charge points and smart heat pumps by giving the government more powers to introduce minimum technical requirements for security and data privacy.
The government will also have the power to regulate companies who remotely operate these appliances.
Kwasi Kwarteng, business and energy secretary, said: “To ensure we are no longer held hostage by rogue states and volatile markets, we must accelerate plans to build a truly clean, affordable, home-grown energy system in Britain.
“This is the biggest reform of our energy system in a decade. We’re going to slash red tape, get investment into the UK, and grab as much global market share as possible in new technologies to make this plan a reality.”
Dhara Vyas at trade association Energy UK said: “With the cost of energy reaching unprecedented levels it’s right that the government urgently legislates to protect consumers, while also delivering frameworks and regulation to support the decarbonisation of the UK economy so that it reduces bills in the long term.”
Energy customers will pay an estimated £2.7 billion to cover the cost of moving 2.4 million customers to new suppliers following the closure of 28 energy firms since June 2021, according to the National Audit Office (NAO), the independent Parliamentary body that scrutinises public spending.
NAO was critical of the role played in regulating the energy market by Ofgem, which is responsible for managing the fall-out when a supplier goes to the wall.
The estimated cost of £94 per household, will be spread across all energy customers, not only those whose firms failed.
According to NAO, Ofgem’s approach to licensing and monitoring suppliers over previous years increased the risk of firms failing, although NAO said considerable hikes in wholesale energy prices were the main cause.
Gareth Davies, head of NAO said: “Ofgem and the Department for Business, Energy & Industrial Strategy (BEIS) ensured that the vast majority of consumers faced no disruption to their energy supply when their provider failed.
“However, by allowing so many suppliers with weak finances to enter the market, and by failing to imagine that there could be a long period of volatility in energy prices, Ofgem allowed a market to develop that was vulnerable to large-scale shocks.
“Consumers have borne the brunt of supplier failures at a time when many households are already under significant financial strain having seen their bills go up to record levels. A supplier market must be developed that truly works for consumers.”
NOA said that, in the years to 2018, Ofgem did not scrutinise the financial position of energy firms when they applied for a licence or after they entered the market. While it began tightening rules in 2018, NOA said Ofgem did not address risks with existing suppliers until 2021.
NAO said Ofgem should “define a set of objectives for its regulation of the retail market around price, stability, and innovation, against which it should review and report its performance at least annually”.
An Ofgem spokesperson said: “Ofgem accepts the findings of the NAO report, which aligns with our own conclusions and the recommendations from the independent Oxera report we commissioned, and we are already working hard to address all of the issues raised.
“While the once-in-a-generation global energy price shock would have resulted in market exits under any regulatory framework, we’ve already been clear that suppliers and Ofgem’s financial resilience regime were not robust enough. This contributed to a significant number of failures since August 2021.
“We welcome the NAO’s recognition that Ofgem began tightening the rules in 2018 and has continued to do so through to 2022. Our announcement this week continues this process with protection of customer credit balances and tough new measures to Boost the financial health of energy suppliers (see story below).
“While no regulator can, or should, ensure companies will not fail in the future, we will continue to take a whole-market approach to further strengthen the regulatory regime, ensuring a fair and robust market for consumers which keeps costs fair as we move away from fossils fuels and towards affordable, green, home-grown energy.”
NOA says the estimated £94 cost per household to cover the administration of the customer reallocation process could rise or fall as the cost of firms exiting the market is uncertain.
An additional cost to run energy firm Bulb Energy may also be added. As a larger supplier with 1.6 million customers, Bulb Energy was put into special administration last year. The government has spent £0.9 billion on an administrator to run the company in 2021-2022 and budgeted another £1 billion to run it during 2022-23.
Ofgem, the energy market regulator, is introducing financial controls to reduce the likelihood of suppliers going bust. And if there are corporate failures in the future, it wants to protect consumers from the cost of handling the administrative fall-out.
Since September 2021, 28 energy suppliers collapsed, leaving all households to share the tab for reallocating their customers to new suppliers and protecting any credit balances they had with the defunct supplier.
This added £94 to every households’ annual energy costs.
Ofgem is proposing:
Jonathan Brearley, CEO of Ofgem, said: “The energy market remains incredibly volatile and there are a number of huge geopolitical issues continuing to apply massive pressure. Ofgem is working to ensure suppliers shore up their positions so they can weather the ongoing storm.
“By ensuring that suppliers are operating well-financed, sustainable and more resilient business models, we can avoid the supplier failures we saw last year which caused huge stress and worry and added costs to everyone’s bills.
“But if some do still fail, consumer credit balances and green levy/renewables payments will be protected.”
Consumer groups have long criticised the system that allows companies to dip into their customers’ account credits to bankroll their operations – Mr Brearley conceded that such balances “are used by some suppliers like an interest free company credit card.”
The idea of the reform is that suppliers will be obliged to have enough working capital to operate without putting their customers’ credit balances at risk. Ofgem has been criticised in the past for allowing dozens of companies to enter the market in the last 10 years without adequate scrutiny of their financial strength.
Ofgem says it wants to build longer-term resilience by encouraging sustainable business models and stopping risky behaviour. It has developed stricter entry requirements for new suppliers and introduced new tests to ensure people who start and run energy companies are fit and proper to do so.
The government has announced that the first of two cost-of-living cash support payments totalling £650 will be made from 14 July onwards to eight million UK households in receipt of means-tested benefits.
The first payment of £326 will be made direct to recipients’ bank accounts by the end of July.
To be eligible for the first instalment, claimants needed to be in receipt of one of the following benefits, or have begun a claim which is later successful, as of 25 May 2022:
This payment will be tax-free, will not count towards the benefit cap, and will not have any impact on existing benefit awards. The second instalment of £324 will follow in the autumn at a date to be decided, with details of eligibility provided in due course.
The £650 payment to low-income households was announced in May by the Chancellor, Rishi Sunak MP, alongside a package of other financial support measure. See story below.
UPDATE 27 MAY: Ofgem, the energy regulator, is warning people not to fall for scams where criminals say it is necessary to register for the payments or the bill discount listed below, before inviting recipients to provide bank details or click through to fake websites. Ofgem has issued no such notices or requests, so any such email, text or other communication should be ignored and reported to Action Fraud in England, Wales and Northern Ireland or to Police Scotland.
Rishi Sunak MP, Chancellor of the Exchequer, has presented a £15 billion package of measures designed to help households afford the expected steep increase in energy bills later this year.
All households will see £400 automatically cut from their bills in the autumn, with no need to repay, while those on means-tested benefits, pensioners and those on disability benefits will receive lump sum cash payments direct to their bank accounts. There will be no need to apply.
The energy bills price cap, managed by the market regulator, Ofgem, is expected to rise to around £2,800 a year for typical households on 1 October, up from £1,971. The current figure for households with a prepayment meter is £2,017 a year.
Ofgem’s chief, Jonathan Brearley, confirmed the £2,800 figure earlier this week (see story below).
The Chancellor also announced an energy profits levy on oil and gas production companies, which have enjoyed soaring profits due to high wholesale prices – this is expected to raise £5 billion.
The government is also exploring whether such a ‘windfall’ tax could be extended to the electricity generation sector.
The measures announced today include:
Additionally, Mr Sunak said that the £200 energy bill grant revealed in February and due to be deducted from all household electricity bills in October will be doubled to £400.
Crucially, he said it will not need to be repaid. Originally, the plan was for £40 a year to be deducted from bills for five years to recoup the original £200 grant.
As part of his cost-of-living address to Parliament, the Chancellor announced that benefits payable in the UK from April 2023, including the state pension, will rise in line with consumer prices as measured in September.
This reinstates the ‘triple lock’, which sees increases each tax year by the highest of three measures: consumer price inflation, average wage growth, or 2.5%.
The government opted to suspend the triple lock for the 2022/23 tax year in response to the pandemic, but the Chancellor has announced it will be reinstated this September for 2023 increases.
The most accurate CPI figure from April this year, as calculated by the Office for National Statistics, is 9%.
The Bank of England and other financial commentators have warned that inflation could continue to remain stubbornly high for the remainder of 2022 and potentially beyond.
If that’s the case, then the new benefit calculation will provide a significant boost to the state pension worth several hundred pounds a year for the 2023/24 tax year. The full UK state pension currently stands at £185.15.
In today’s speech, the Chancellor announced a Temporary Energy Profits Levy as part of the government’s cost of living support package.
Oil and gas companies will face an additional 25% tax on profits, taking their effective rate from 40% to 65%. This is a temporary measure that will be phased out when oil and gas prices “return to historically more normal levels”.
Mr Sunak mentioned that a ‘sunset clause’ will be written into the legislation, with the expectation that the temporary uplift in tax rates will cease at the end of 2025.
He also announced a new Investment Allowance to soften the blow for oil and gas companies. Companies will now receive 90% in tax relief for every £1 invested, almost double the previous level. Mr Sunak stated that “companies will have a new and significant incentive to reinvest their profits.”
Mr Sunak made reference to the “extraordinary” profits also being made in the electricity generation sector and pointed out that France, Italy, Spain and Greece have already taken measures to correct this.
The government is exploring whether generator companies should also face a profits levy.
Mr Sunak estimated that the Energy Profits Levy on oil and gas producers will raise £5 billion over the next year to help fund the £15 billion of support measures announced today.
Average household energy bills could jump by more than £800 a year this autumn when the new energy price cap takes effect.
Jonathan Brearley, chief executive of energy regulator Ofgem, told MPs on the cross-party Business, Energy and Industrial Strategy Parliamentary committee that he expected the energy price cap to rise to “around £2,800” when it is recalculated later this summer.
The current cap, implemented in April, stands at £1,971.
Such a move would worsen the UK’s current cost-of-living crisis already being felt by millions of households.
Brearley attributed the rise to continued volatility in the gas market. This has been exacerbated by the Russian invasion of Ukraine, its impact on supplies and the subsequent knock-on for the price of fuel.
Volatile energy prices have already caused 30 UK energy companies to go bust since the beginning of 2021. Collapses such as these can also drive consumer prices higher because of the cost of reallocating customers of failed firms to other suppliers.
The price cap, which limits how much energy firms can charge for each unit of gas and electricity supplied to domestic customers, along with any standing charge, rose by 54% on 1 April this year.
The increase this spring meant that the bill for a household with average consumption, on a dual-fuel standard variable rate tariff and paying by direct debit, rose from the previous price cap level of £1,277 to just under £1,971.
Pre-payment meter customers also experienced a hike in prices – from £1,309 to £2,017 – also based on typical usage.
The cap, which is calculated twice-yearly at the moment, although Ofgem is pushing for it to be reviewed quarterly from the autumn (see stories below), applies to around 22 million households in England, Scotland and Wales. Northern Ireland does not have a price cap.
Brearley told MPs that energy price rises were a “once in a generation event not seen since the oil crisis in the 1970s”.
He also warned that the number of people in fuel poverty – defined as being when a household needs to spend more than 10% of its disposable income on heating its home – could double.
Using the current system of calculation, the price cap will be recalculated this August before being implemented on 1 October. Brearley estimated that, by the autumn, 12 million households could be placed in fuel poverty.
Brearley told MPs: “We are really managing between two versions of events. One where the price falls back down to where it was before, for example if there’s peace in Ukraine, but one where prices could go even further if we were to see, for example, a disruptive interruption of gas from Russia.”
The Ofgem boss also apologised for regulatory shortcomings and admitted that had financial controls been in place sooner for suppliers, fewer firms would have gone bust in the past year due to being unprepared for the sharp rise in wholesale energy prices.
The estimated jump in the price cap is likely to renew calls on the government to take further action to head off the impact on households facing soaring energy costs. One solution being suggested by opposition parties and campaigners is a windfall tax on energy companies which have enjoyed bumper profits in the first part of this year.
Energy research specialist Cornwall Insight today provided analysis of the likely effect on energy bills of moving to a quarterly price cap review, compared to the current price cap review every six months (see story below).
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “The devil will be in the detail. With greater complexity comes greater risk of unintended consequences. It would have been useful to see more detailed evaluation of price cap levels for the new world against the old from a consumer perspective.”
Cornwall Insight is forecasting that typical annual energy bills would rise to £2,750 this winter under the current price cap system. Under a quarterly review of the price cap, it predicts that bills would rise to £2,600.
While this remains a significant increase from the current price cap level of £1,971 a year for a household with average consumption, it would mean a 5% reduction compared to the six-monthly review period.
Ofgem, the energy market regulator, is undertaking a formal consultation of its proposed move to a three-monthly review of the price cap. It favours the move because, it says, it would protect energy suppliers who would be able to move their energy prices in line with changes in wholesale rates.
Any changes would come into effect from October 2022 when the current price cap is due to change (the new level will be announced in August).
The UK’s energy regulator, Ofgem, is seeking reforms that would see its energy price cap adjusted every quarter rather than twice a year.
The cap was introduced in 2019 to protect consumers from unfair pricing, by limiting what energy suppliers can charge. It is currently updated in line with wholesale energy costs every April and October.
Under the proposed reforms, the cap would be updated every three months in January, April, July and October.
The cap, which limits the amount consumers can be charged for each unit of energy used and for associated standing charges for gas and electricity, does not put a ceiling on bills. The more energy used, the higher the bill will be.
At present, the cap is £1,971 for an average household with a dual fuel (gas and electricity) variable rate tariff, paying annually by direct debit. There are fears this could rise to £2,600 or even £3,000 in October.
Last week, the government announced in the Queen’s Speech that the cap, introduced as a temporary measure in 2019, will be extended beyond 2023 in recognition of market conditions (see story below).
Jonathan Brearley, Ofgem CEO, said changing to quarterly cap reviews could cut bills: “Our reforms will ensure consumers are paying a fair price for their energy while ensuring resilience across the sector.
“Today’s proposed change would mean the price cap is more reflective of current market prices, and any price falls would be delivered more quickly to consumers.”
Ofgem believes adjusting the price cap every quarter will help energy suppliers remain profitable as wholesale prices rapidly rise and fall, reducing the likelihood of corporate failures.
Volatile prices have caused around 30 UK energy companies to go bust since the beginning of 2021. Collapses such as these can drive consumer prices higher because of the cost of reallocating customers of failed firms to other suppliers.
Mr Brearley added: “The last year has shown that we need to make changes to the price cap so that suppliers are better able to manage risks in these unprecedented market conditions.”
In the midst of a cost-of-living crisis, falling energy bills could ease the strain on UK household budgets. However, if the cost of wholesale energy continued to soar, the bill would be passed onto consumers much more quickly if there were a quarterly cap change in place.
Ofgem will initiate a consultation on the price cap plans today, which will remain open until Tuesday 14 June 2022. If these reforms come into effect, they will be put in place from October 2022.
The Queen’s Speech, delivered by Prince Charles today to outline the government’s legislative programme for the next session of Parliament, included details of an Energy Securities Bill. This is aimed at protecting consumers from steep price hikes via an extension to the official energy price cap regime beyond 2023.
The Bill will also renew national emphasis on the switch to renewable energy sources and encourage households to install heat pumps as an alternative to traditional heating methods that are dependent on fossil fuels.
However, critics have suggested that the government should be taking more urgent action to alleviate the cost of living crisis in general and soaring energy bills in particular. The government has countered by stating that there are no short-term fixes available.
There are fears that the next iteration of the price cap, which will be announced by the regulator Ofgem in August and implemented in October, could reach £3,000 a year from its current level of £1,971 for typical households (see stories below).
The price cap was a temporary measure introduced in 2019 to prevent energy suppliers from making huge profits. The turmoil in the market since wholesale prices escalated at the beginning of 2021 has necessitated its being extended to protect customers from suffering the full extent of costs, hence the announcement today.
Currently, the cap changes twice a year in April and October, but Ofgem is proposing to adjust it more frequently if market conditions dictate.
The UK government is proposing to expand its Warm Home Discount scheme in Scotland, with around 50,000 extra families being added to the 230,000 that already receive payments.
The £140 payment towards winter electricity bills would also increase to £150, with more suppliers encouraged to participate. The scheme would also be extended to 2025 to 2026.
The aim is to bring the Scottish scheme into line with the comparable schemes in England and Wales.
The government said: “The Warm Home Discount in Scotland will continue to focus support on those in receipt of means-tested benefits such as Universal Credit and Pension Credits, which ensures that rebates go to those on the lowest incomes.
“Energy suppliers can use additional eligibility criteria, as long as the criteria identify households at risk of fuel poverty, subject to approval from (energy regulator) Ofgem.”
You can find out more here about the Warm Home Discount scheme, including eligibility criteria.
In an interview with the BBC, Keith Anderson, head of Scottish Power, has repeated his calls for vulnerable households to receive a reduction of £1,000 in their energy bills in the autumn, with the cost being met by a £40 increase in the annual bills of other energy customers for five years, starting in 2023.
Mr Anderson first made the proposal when questioned in Parliament last month (see story below). He believes up to 10 million households are at risk of fuel poverty when the next adjustment to the Ofgem price cap is made in October.
He is concerned that the cap will be set too low because Ofgem will use current low gas prices in its calculations, whereas many suppliers have already paid accurate high prices for future supplies.
If the cap prevents suppliers from recouping what they have already spent, Mr Anderson said we could see further corporate failures on top of the 30 we have seen in the past 18 months.
This would feed significant additional costs into the system which would ultimately have to be added to customer bills.
Pundits are suggesting that the October price cap figure could land somewhere between £2,500-£3,000 for typical users, up significantly from its current level of £1,971.
Kwasi Kwarteng MP, business and energy secretary, has today confirmed that the energy market regulator, Ofgem, is scrutinising the behaviour of suppliers with regard to excessive increases in customer direct debits, with substantial fines likely if firms continue to transgress.
In a tweet this afternoon, Mr Kwarteng put his voice behind what many customers have been saying in accurate weeks – that suppliers have demanded regular payments at a level far in excess of what might be justified by the increase in Ofgem’s price cap on 1 April.
The cap increased by 54%, adding almost £700 to typical annual energy bills for those paying by direct debit for a dual fuel variable rate tariff. The current average price of £1,971 is expected to rise even further in October, when the next cap review is implemented, due to high wholesale prices.
Mr Kwarteng tweeted: “Some energy suppliers have been increasing Direct Debits beyond what is required.
“I can confirm Ofgem has today issued Compliance Reviews. Suppliers have three weeks to respond.
“The regulator will not hesitate to swiftly enforce compliance, including issuing substantial fines.”
Ofgem first raised the issue of supplier bad practice in April when its boss, Jonathan Brearley, said: “We are seeing troubling signs that some companies are reacting to these (market pricing) changes by allowing levels of customer service to deteriorate.
“Concerns have been raised that some suppliers may have been increasing direct debit payments by more than is necessary, or directing customers to tariffs that may not be in their best interest.
“When households are facing massive increases in their energy bills, it is particularly important that suppliers are held to account and bad practices are addressed quickly.”
The compliance reviews will include stricter supervision of how direct debits are handled and how much firms are holding in customer credit balances.
Mr Brearley said: “This work will allow Ofgem to determine if companies are fulfilling their licence conditions and to work with them to rectify deficiencies. Where they fail to do so, we will not hesitate to take swift action to enforce compliance, including issuing substantial fines.”
Ofgem is also cracking down on the practice whereby companies use customer money to prop up their business rather than buy energy. It says this is one of the root causes of the failures of many of those suppliers who exited the market.
Mr Brearley said: “Customer credit balances should only be used to reconcile bills, not as a source of risk-free capital. That is why we are considering options to ring-fence credit balances and renewables payments in such a way that they would be protected if a supplier fails.”
Around 30 companies have gone bust since the start of 2021.
CEOs of some of the UK’s largest energy companies are calling on the government to provide urgent and concrete financial support to struggling customers facing huge increases in their bills.
Speaking at a meeting of the Business, Energy & Industry Strategy Parliamentary Select Committee today, Keith Anderson, head of Scottish Power, told MPs that the current affordability crisis “is of a size and scale beyond what the industry can deal with.”
Energy prices leapt by 54% on 1 April when the market price cap, set by the regulator, Ofgem, was increased to take account of higher wholesale costs in accurate months. Average annual bills now stand at around £2,000.
The cap is expected to increase further on 1 October due to the impact of the war in Ukraine on energy supplies. Mr Anderson said the effect of the October cap change will be “horrific”.
One proposal for government intervention is the creation of a ‘deficit fund’, which would see £1,000 removed from the annual bills of customers deemed to be in fuel poverty or on a prepayment meter. This fund would then be repaid over 10 years by the entire energy customer base.
Mr Anderson said this short-term measure should lead to the creation of a discounted social tariff, again aimed at those in fuel poverty and those on a prepayment deal.
Michael Lewis, head of Eon, said the government could also remove VAT from energy bills (it is charged at 5%) and transfer environmental levies from bills into the general taxation burden. Taken together, these measures could reduce annual average bills by £250 – £300.
Further measures could include extending the Warm Home Discount, worth £150 a year next winter, to a larger number of people, and increasing the £200 energy rebate that will be paid by the government to all UK domestic electricity accounts in the autumn.
Mr Lewis also called for the roll-out of energy smart meters to be made mandatory to help Boost efficiency across the market.
Chris O’Shea, head of British Gas owner Centrica, said the regulation of the industry should be overhauled to prevent future corporate failures. Around 30 energy firms have collapsed in the past 12 months, with the resultant administration costs adding £68 to the standing charges paid by every energy customer.
Mr O’Shea told the cross-party committee of MPs that he fears more business failures next winter, with the grim possibility that they could dwarf what has gone before.
The assembled energy bosses expressed support for the announcement last week by the regulator, Ofgem, that it will pursue tighter controls to prevent companies from using customer funds to prop up their businesses.
They also backed moves to stop energy companies increasing customer direct debits by disproportionate amounts, and to bar them from moving customers to fixed rate tariffs costing more than standard variable rate tariffs.
Ofgem has threatened to levy substantial fines on companies that do not comply with its rules.
The cross-party Business, Energy & Industrial Strategy Committee will today quiz representatives of four major energy firms on the support they are providing customers in the wake of a 54% hike in average bills on 1 April.
CEOs from Centrica (owner of British Gas), E.ON, EDF and ScottishPower will face MPs at 10:30 this morning.
MPs are expected to focus on the issue of suppliers reportedly increasing direct debits beyond a level consistent with the new energy price cap of £1,971 a year for typical consumption.
There have also been reports of customers being forced onto expensive fixed rate deals instead of variable tariffs, which are cap-controlled.
MPs will also question the bosses on how they will help implement the government’s Energy Security Strategy (see story below). Other courses on the agenda include the delivery of the £200 energy bill rebate scheme in the autumn, the future of the price cap, and whether the market will remain competitive.
Also scheduled to appear before the committee are the bosses of collapsed suppliers Bulb and Avro, who will be scrutinised over the management of their firms before they went out of business last year.
A significant part of the increase in the price cap this month is attributed to the cost of reallocating customers from the 29 firms that have ceased trading since the energy crisis started to bite last summer with a sharp increase in wholesale prices.
The Committee says the failure of Avro, which folded owing £90m to customers, is expected to cost consumers £700 million.
Bulb was effectively nationalised – put into a Special Regime overseen by the regulator, Ofgem, and the government – after being deemed too big to fail. The government is trying to find a buyer to take it over amid reports that its life support arrangement could hit £3 billion.
The government has published its British Energy Security Strategy, with the emphasis on moving to low-carbon generation and boosting UK energy self-sufficiency in the next 10-15 years. But the initiative does little to address pressing concerns about the affordability of energy during the current cost of living crisis.
The government says: “Consumer bills will be lower this decade than they otherwise would be as a result of the measures this government has taken.”
There have been calls from opposition MPs and consumer advocates for the government to call an emergency Budget to address the squeeze on household finances. Critics of the overall strategic approach have also argued that more emphasis should be given to improving energy efficiency, for example, by greater subsidies for insulation of UK housing stock.
The new energy strategy says the government will support the production of domestic oil and gas in the nearer term, but this activity is unlikely to reduce the likelihood of another hike in the domestic energy price cap in October.
The cap – adjusted twice yearly – reflects movements in wholesale energy prices. October’s cap will take into account prices in the six months to the end of July, which are being inflated by fears of supply, in part due to the conflict in Ukraine.
The government’s ambition to de-carbonise energy production will see the acceleration of the deployment of wind, new nuclear, solar and hydrogen. It says this could see 95% of electricity by 2030 being low carbon – there is a legal requirement for the UK to achieve net zero carbon emissions by 2050.
Some critics have suggested that energy bills – many of which increased by 54% on 1 April when the price cap was increased – could be reduced by £100 in the short-term by the removal of so-called ‘green levies’, which help fund environmentally-friendly energy initiatives.
The government strategy says nuclear generation – which it calls a safe, clean, and reliable source of power – will represent up to around 25% of the UK’s projected electricity demand.
A new government body, Great British Nuclear, is being set up to bring forward new projects “as soon as possible this decade”, including Wylfa site in Anglesey. The strategy document says up to eight new reactors could be built.
Other plans include:
Energy market regulator Ofgem is ‘engaging with suppliers’ following multiple reports of customers being unable to submit meter readings ahead of the 54% increase in its price cap, effective tomorrow (1 April).
Customers are trying to submit up-to-the-minute readings ahead of the price increase, which affects those on variable rate tariffs, so that they can ensure they pay today’s lower rate for the energy they use in March.
The fear is that, if they rely on their supplier’s estimate of how much energy they have used, some of their March usage might be billed at the higher, April rate.
The cap on prepayment meters bills is also increasing tomorrow, but as customers here are on pay-as-you-go terms, there is no need to log a meter reading.
In a series of tweets this afternoon, Ofgem said: “We are aware some energy suppliers are having trouble with their websites today, affecting people being able to submit meter readings or access their online account. We are engaging with suppliers on the issue.
“Consumers who experience issues should contact their supplier straight away, and take a picture of their meter reading if high contact volumes mean they are unable to get through.
“Suppliers must take all reasonable steps to provide ways for consumers to access their account information, including submitting meter readings.”
A number of replies to the tweets pointed out that consumers are not able to contact their suppliers precisely because websites and phonelines have been overwhelmed by the number of people trying to get in touch.
Anyone thinking about reaching their supplier today is advised to take a photograph of their meters (gas and electricity) and email them to their own account so they have a record of usage up to today’s date.
This can then be submitted at a later date or kept to hand in case of a dispute in the future.
Those with smart meters will have their readings sent automatically to their supplier, but they are of course at liberty to take and retain a photograph if they wish.
Those on fixed rate energy tariffs will see no change to their bills from tomorrow as their deals are outside the scope of the price cap.
In another tweet thread, Emma Pinchbeck of supplier trade body Energy UK, said websites are down because of the scale of the customer inquiries: “People are very worried, and of course they’ve seen consumer groups say today is the deadline for submitting readings.
“We’re just checking in with members but note: a) some suppliers won’t implement new prices tomorrow b) most will take meter readings after today and have put other measures in place for submission. Don’t panic, check meter, keep reading: many suppliers have info on their twitter.
“Meanwhile, website & call centre failures for industry & consumer groups reflect scale of concern. It highlights how scary these price rises are, and what industry has been saying to Gov: the high gas price isn’t just an issue for vulnerable customers, and more needs to be done.”
Yü Energy Retail Limited, a firm supplying 20,000 UK premises, is taking on customers from Whoop Energy and Xcel Power Limited, which ceased trading last week (see story below).
As it the case when suppliers go out of business, the market regulator, Ofgem, ran a competitive tendering process and identified Yü Energy as the best candidate for customers of the failed firms.
Yü Energy is primarily known as a business energy supplier, but it posted a reassuring message on its website to the the 50 domestic customers moving across from Whoop: “Ofgem decided that we were the best people for the job. We proved we were able to take over your supply and are committed to bringing you on board. Yü Energy is a strong business with a long-term strategy and the ability to ride out the current challenges in the energy industry.”
Domestic customers will be transferred to a tariff protected by the Ofgem price cap (see stories below). Business energy tariffs are not governed by the price cap. Commercial customers will be moved to a fixed rate tariff, with prices announced in the coming days.
Anyone wishing to switch supplier can shop around but are advised to wait until the transfer has been completed. Customers will not be charged exit fees if they decide to switch to another supplier. For more information customers can visit www.yuenergy.co.uk.
At present, there are no domestic tariffs available for less than the current price cap, which is in place until 31 March. On 1 April it will increase by 54% to take account of rising wholesale prices.
The cap for a household with average consumption on a dual-fuel standard variable rate tariff, paying by direct debit, will rise by £693 from £1,277 to just under £1,971. Prepayment meter customers will see an increase of £708 from £1,309 to £2,017, again for typical usage.
Actual bills will always be determined by consumption, so the cap is not a limit on how much will be charged to any given consumer.
Customers’ supplies will continue as normal following the switch over to Yü Energy on 19 February 2022. They will be contacted over the coming days about the changes. They should take a meter reading as soon as possible.
Two of the energy markets smaller players, Whoop Energy and Xcel Power, have announced they are ceasing to trade.
This brings to 28 the number of firms that have closed their doors since the current energy market crisis deepened last August with a spike in wholesale prices.
Whoop Energy suppliers gas and electricity to 262 customer accounts – 50 domestic and 212 non-domestic. Xcel Power has 274 non-domestic gas customers.
Under the safety net protocol operated by Ofgem’s, the energy market regulator, customers’ supply will continue and funds that domestic customers have paid into their accounts will be protected, where they are in credit.
Domestic customers will also be protected by the energy price cap when being switched to a new supplier. The price cap, currently £1,277 a year for dual fuel users with average consumption, will rise to £1,971 on 1 April (from £1,309 to £2,017 for those with pre-pay meters).
The existence of the cap has sheltered consumers from the worst impact of rising energy prices, although the forthcoming 54% increase is unprecedented and is forecast to tip millions into financial hardship.
For suppliers, the cap has meant they have been effectively selling energy at a loss, hence the catalogue of corporate failures in recently months.
Customers of Whoop Energy and Xcel Power Ltd will be contacted by their new supplier, which will be chosen by Ofgem, in due course. Ofgem’s advice to affected customers in the meantime is to:
• wait until a new supplier has been appointed and you have been contacted by them in the following weeks before looking to switch to another energy supplier.
• take a meter reading ready for when your new supplier contacts you to make the process of transferring customers over to the chosen supplier and honouring any funds that domestic customers have paid into their accounts, where they are in credit, as smooth as possible.
With the startling 54% increase in its domestic price cap just six weeks away on 1 April, energy regulator Ofgem has announced two measures designed to Boost the stability of the market and shield consumers from further steep increases.
It hopes to reduce the number of companies that might go bust as a result of the continuing high price of gas and electricity on wholesale markets.
The cost of reallocating customers of the 26 companies that have failed since the crisis deepened last summer is estimated to be £4 billion, which will feed through to customers’ bills.
The first measure will be to require suppliers to offer all their tariffs to existing as well as new customers, rather than offer unrealistically cheap deals to new customers to get their business on the books.
According to Ofgem, this will “help to stabilise the market in the short term by acting as a break on unsustainable price competition when cheaper tariffs return and customer switching picks up again.
“It will also limit price discrimination by suppliers and help to Boost consumer trust and confidence in the retail market after the challenges of this winter, improving access to cheaper tariffs for consumers who may be less willing or able to switch supplier, particularly those in vulnerable situations.”
The second measure is the potential to levy a market stabilisation charge if wholesale prices fall significantly after the new price cap level takes effect.
This would see companies that are acquiring new customers pay a charge to those losing the business, to smooth out the extreme effects of wholesale price volatility.
Ofgem concedes that, if the charge is triggered, it will reduce “to some degree” the cheapest tariffs available in the market. It adds: “However, there will still be significant savings available to active consumers looking to switch.”
Additionally, the expected reduction in the number of companies going out of business will reduce upward pressure on bills.
Both measures are expected to be removed in the autumn when Ofgem hopes to bring in further reforms to its price cap mechanism.
These include introducing quarterly reviews (at present the cap is reviewed each February and August with any change taking effect in April and August) and a reduction in the notice period suppliers are required to deliver their customers from two months to one.
Households will get credit on their energy bills by limiting their energy consumption during peak hours this winter, as part of a new National Grid plan.
The National Grid Electricity System Operator (ESO) is partnering with Octopus Energy to see if, between 11 February and 31 March, it can better match energy demand with supply – and it will offer one-off ‘financial incentives’ to those taking part.
Around 1.4 million Octopus Energy customers with smart meters will be eligible for rewards if they reduce their power consumption below what they’d normally use between one of a range of two-hour time slots each day throughout the two-month trial.
Each day’s two-hour window – 12-2am, 9-11am or 4.30-6.30pm – will be announced by 4pm the previous day, giving those involved the chance to opt in or out. Those who opt in will be able to earn up to 35p of free energy for every kilowatt hour (kWh) they don’t use.
The trial could reduce power demand by as much as 150 Megawatts (MW) during each two-hour event, or 75 megawatt hours (MWh). For context, the average UK household uses around 15,000 kilowatt hours (kWh) of gas and electricity per year – equivalent to 15 MW.
ESO will use data gathered during the pilot to inform its plans to run a zero-carbon grid for certain periods by 2025, and a fully decarbonised grid by 2035. It hopes the data will allow it to balance supply and demand more efficiently, with savings passed on to households.
Isabelle Haigh of ESO said: “Encouraging households to engage in exciting climate-friendly energy opportunities like this trial will be crucial in our transition to net zero.
“System flexibility is vital to help manage and reduce peak electricity demand and keep Britain’s electricity flowing securely.
“This trial will provide valuable insight into how suppliers may be able to utilise domestic flexibility to help reduce stress on the system during high demand, lower balancing costs and deliver consumer benefits.”
The trial comes less than a week after the energy regulator Ofgem announced a 54% increase to its energy price cap for 22 million households in England, Scotland and Wales – up from £1,277 to just under £1,971 for those with average consumption levels.
It means a household with average consumption on a dual-fuel standard variable rate tariff, paying by direct debit, will pay an extra £693 for energy from April 1.
The government responded to the unprecedented increase by announcing £350 worth of support for around 30 million households – comprising a £150 Council Tax rebate and a £200 loan to be repaid over five years from 2023.
With consumers reeling from the 54% hike in the energy price cap from 1 April announced yesterday (see stories below), the government has published an article – Busted: the 9 big myths on energy in the UK – intended to dispel “some of the popular myths around energy price rises in the UK.”
The effect of the price cap increase will be to push up average annual bills from £1,277 to £1,971 (from £1,309 to £2,017 for those with pre-pay meters).
The scale of the rise, while widely expected, has still proved to be a huge shock for the near-30 million households that will be affected.
Government proposals to soften the blow – a £200 reduction in bills in October (to be repaid over five years) and a £150 Council Tax rebate (that doesn’t need to be repaid) for those in bands A to D to coincide with the cap hike in April – have been branded as inadequate and poorly targeted by consumer groups and opposition parties.
There have been calls for more money to be diverted towards eradicating fuel poverty, which is when required spending on energy pushes a household below the official poverty line.
Commentators are pointing to Shell’s huge increase in operating profits – up to £12 billion for 2021, also announced yesterday – and urging the government to impose a windfall tax on energy production companies that have benefited from a spike in prices on wholesale markets.
There is no indication the government is considering such a move.
We’ve published the government’s article below to deliver an insight into official thinking on the energy market, and added our own comments under each ‘myth’.
“No, rising energy prices are the result of a global spike in gas prices, which has a number of causes including rebounding global demand as COVID-19 lockdowns ease and a greater liquified natural gas demand in Asia.
“In fact the Energy Price Cap continues to protect millions of customers and ensures they pay a fair price for their energy, despite the sudden rise of wholesale energy costs.
“But in light of continued cost of living pressures, the government has announced a package of support to help households with rising energy bills, worth £9.1 billion in 2022 to 2023.
“The devolved administrations are also receiving around £715 million funding through the Barnett formula as usual where UK government support doesn’t cover Scotland, Wales or Northern Ireland.”
We say: Critics argue that, even if a household receives the full £350, this will only be roughly half of the typical increase in bills from 1 April – with £200 of it in the form of a loan in October that will need to be repaid at £40 a year via higher bills for five years, starting 2023.
There are also concerns about the administration of the scheme, with suggestions that some people who do not receive the loan may still have to pay higher bills if they become energy customers in subsequent years.
“No, because the Energy Price Cap remains in place to protect consumers.”
We say: Energy firms will not be able to charge more than the cap for standard variable rate tariffs. But the cap is widely expected to increase again when it is reviewed in August for implementation in October. So while the release of government money will not inflate prices, consumers are still facing a further hike in their bills.
“Neither oil or gas companies or energy supply companies will benefit financially from the new schemes announced today and all the money will be passed through to domestic energy consumers.”
We say: The energy price cap is structured in such a way to prevent energy suppliers making excessive profits – that was the thinking behind its introduction in 2019. But the perception remains that consumers are bearing an unfair burden in an era of high wholesale prices.
“As an internationally traded commodity, gas is exported and imported in line with price signals. Broadly, the UK imports more than it exports.
“The UK continues to benefit from strong security of gas supply, benefitting from highly diverse sources, including through one of the largest liquified natural gas import infrastructures in Europe.”
We say: Critics point out that the UK’s gas storage capacity has been severely reduced in accurate years, leaving the country exposed to short-term price fluctuations because there is no alternative to paying market rates to maintain supply.
“Closing coal plants is not increasing energy prices. In line with our net zero target, the government has committed to phasing out unabated coal-fired power generation by 2024. Closure of coal units ahead of this date is a commercial decision for the companies involved.”
We say: The government has to balance its commitment to moving to a net zero carbon economy by 2050 with the need to ‘keep the lights on’ in the meantime. It will be forced to make more difficult decisions with regard to the use of carbon fuels, including natural gas, as that date approaches.
If credible, reliable alternatives to fossil fuels are not brought on stream in the near term, gas is likely to remain high in the mix, with all that implies for domestic bills.
“Roughly around half the UK’s gas supply comes from domestic sources, and the UK’s gas sector has been maximising production where possible through this winter.
“Most imports come from reliable suppliers such as Norway. We also have one of the largest liquefied natural gas (LNG) infrastructures in Europe.
“We have also been working with oil and gas operators in the UK to develop additional fields. Three new gas streams came online at the end of last year, with more upcoming. However, the biggest factors influencing gas prices are attributable to international activity extending beyond Great Britain’s domestic production.
“Less than 3% of our gas was sourced from Russia in 2020.”
We say: Private companies extracting gas from the North Sea and other fields around the UK sell their products on the open market where they can get the best price. They are under no compulsion to sell into the UK market at a subsidised or controlled cost, and it is hard to see a Conservative government changing this system.
“It is important to note that higher wholesale gas prices are being faced internationally due to multiple factors in supply and demand – with some countries in Europe in particular facing much more severe security of energy supply challenges than the UK.
“The package of measures announced by the Chancellor will mean millions of households receiving up to £350 to help with the cost of living. That is broadly in line with the support offered by most of our European neighbours, and in many cases is more generous.”
We say: Different countries are adopting different solutions to the general problem of high wholesale prices. For example, the French government has said that energy consumers should only see an increase in bills of 4%, with the national energy operator, EDF, responsible for costs above that level.
However, as EDF is state-owned by the French government, these costs are likely to become part of the country’s general taxation burden, so this in one sense can be seen as financial sleight of hand.
“Decisions on the scale of capital investment in production and the way returns are made to investors are commercial decisions for companies. The UK remains an attractive destination for companies to invest in oil and gas production.”
We say: The Conservative party is rooted in free-market economics. It is hard to see that changing, although conflict in Ukraine, with associated disruption to gas supplies, might mean all bets are off, at least temporarily.
“The government is doubling its efforts to generate more clean, affordable power in this country to meet the target of decarbonising Britain’s electricity system by 2035.
“Since 2010 we have increased the percentage of power from renewables from 7% to 43% as of 2020, and our latest allocation round of the successful Contracts for Difference scheme is seeking up to 12 GW of additional renewable capacity. This would be more than the previous 3 rounds combined.”
We say: The government has given itself highly ambitious green energy targets that will require sustained investment. Its progress on these measures will be closely monitored, both by the green lobby and by those concerned with security of supply.
The government is already grappling with a cost of crisis that includes likely higher mortgage costs following yesterday’s increase in the Bank rate to 0.5%, higher national insurance contributions from April, and inflation above 5% and predicted to hit 7% in the coming months.
The surge in the energy price cap is adding to its woes, and there will be a fresh round of negative reporting when the price cap rise takes effect on 1 April. We can probably expect to see further messaging of this nature in the coming weeks.
Close on 30 million households will benefit to the tune of up to £350 in reduced bills and rebates following the 54% rise in the energy price cap announced earlier today (see story below).
The Chancellor Rishi Sunak told the House of Commons this morning that all domestic electricity customers will get £200 off their energy bills from October. Additionally, 80% of households will receive a £150 Council Tax rebate from April.
Energy suppliers will apply the discount to 28 million domestic electricity customers from October, with the Government meeting the costs. The discount will then be recovered from people’s bills in equal £40 instalments over the next five years.
This will begin from 2023, when the government says global wholesale gas prices – the prime reason for the 54% increase in the price cap – are expected to come down.
Households in England in council tax bands A-D will receive a £150 rebate, made directly by local authorities from April. This will not need to be repaid. The government is also making available discretionary funding of £144 million to support vulnerable people and individuals on low incomes that do not pay council tax, or that pay for properties in bands E-H.
Devolved governments in Scotland, Wales and Northern Ireland are expected to receive around £565 million of funding as a result of the Council Tax Energy Rebate in England. Northern Ireland will receive £150 million of additional funds to provide support for energy bill-payers.
The Chancellor also today confirmed plans to go ahead with existing proposals to expand eligibility for the Warm Home Discount by almost a third to three million vulnerable households will now benefit. The planned £10 uplift to £150 from October has also been confirmed.
The energy price cap, which limits how much firms can charge for each unit of gas and electricity supplied to domestic customers, as well any standing charge, is to rise by 54% on 1 April 2022.
This means the level of the cap for a household with average consumption on a dual-fuel standard variable rate tariff, paying by direct debit, will rise by £693 from £1,277 to just under £1,971. real bills will always be determined by the amount of energy used.
Prepayment meter customers will see an increase of £708 from £1,309 to £2,017, again for typical usage.
The cap applies to around 22 million households in England, Scotland and Wales. Northern Ireland does not have a price cap.
The increase is due to sustained high wholesale gas prices in the six months to the end of January – the period used by Ofgem, the market regulator which sets the cap, to determine what the new level should be. Once in effect from April, the cap is due to remain at the same point until the end of September, when it will be adjusted again.
However, Ofgem is to unveil measures later this week that may allow it to make adjustments more often than six-monthly. It said: “Further measures include enabling Ofgem to update the price cap more frequently than once every six months in exceptional circumstances to ensure that it still reflects the true cost of supplying energy.”
Such has been the cost of wholesale gas that around 30 energy suppliers have gone out of business in accurate months, with their customers transferred to larger rivals. The effect of the cap has been to prevent suppliers from charging enough to cover the cost of buying gas in bulk, leading to them operating at a loss.
Gas prices have risen on international markets because of high demand post Covid lockdown. Alternative sources of energy, such as wind, solar and nuclear, have not been able to meet requirements.
The government is to announce measures later today to help beleaguered households cope with the massive escalation of costs. Rishi Sunak MP, Chancellor of the Exchequer, is to hold a press conference this evening, with expectations high that he will provide details of a fund from which energy companies can borrow money in order to reduce the amount by which bills will increase.
But as this would be a loan, the belief is that bills would need to remain artificially high, even after the gas supply crunch comes to an end, to fund repayments.
Ofgem, the energy market regulator, is expected to announce the next level of its price cap tomorrow (Thursday 3 February). The cap, which dictates how much energy firms can charge per unit of gas and electricity they supply to domestic customers, will be adjusted on 1 April and will remain at the new level until 30 September.
The announcement was scheduled for next Monday but has reportedly been brought forward because the government is eager to unveil a package of measures to help hard-pressed energy consumers.
The cap is widely expected to increase from its current level of £1,277 a year (for typical households on a dual fuel gas and electricity tariff paying in arrears) to around £2,000 a year.
The cap for households with pre-payment meters – currently standing at £1,309 a year for average consumption users – is also expected to rise steeply.
At present, there are no cheaper alternatives to the cap, meaning customers who are not on fixed rate deals already have no option but to pay it. If the cap rises as expected, there may be scope for suppliers to undercut it, but such as been the increase in wholesale energy costs in the past year that this may prove a struggle.
The increase in the cap will stretch many household budgets to breaking point and beyond. In response, the government is expected to announce a package of measures to support consumers, possibly as soon as Thursday afternoon.
We will provide details as they arrive.
British Gas is taking on the customers of Together Energy Retail after the Bristol-based supplier closed its doors last week (see story below).
The move was announced by Ofgem, the energy market retailer, which runs a safety net operation in the case of corporate failures. Together Energy, which also uses the brand Bristol Energy, has 176,000 domestic customers and 1 non-domestic customer.
Under the provision of the safety net, money that current and former domestic customers of the suppliers have paid into their accounts will be protected, where they are in credit. Domestic customers will also be moved to a British Gas tariff that is governed by Ofgem’s energy price cap.
The will be no interruption to energy supplies. Customers of Together Energy will be contacted over the coming days about the changes. If customers wish to switch supplier, they can shop around but are advised to wait until the transfer has been completed.
Customers will not be charged exit fees if they decide to switch to another supplier, although they are extremely unlikely to find a tariff priced below the level of the price cap, which stands at £1,277 a year for a typical household on a dual fuel deal.
Customers seeking more information can contact British Gas.
The UK’s beleaguered energy sector was delivered another blow today with the announcement that Together Energy Retail has gone out of business.
The firm – which also runs Bristol Energy – supplies around 176,000 domestic customers, and one non-domestic customer.
Under the safety net operated by Ofgem, the market regulator, customers’ energy supply will continue and funds that domestic customers have paid into their accounts will be protected, where they are in credit.
Domestic customers will be switched to a new supplier, with their new tariff protected by the energy price cap.
Customers will be contacted by their new supplier over the coming weeks. This firm will be chosen by Ofgem after a tendering process.
Ofgem’s advice to customers is to:
Together is one of almost 30 suppliers that have gone bust in the past 12 months due to an unprecedented increase in global gas prices.
The price cap means that suppliers are unable to pass on the full cost of paying wholesale suppliers for energy, meaning they are effectively selling to UK customers at a loss. This is the reason for such a volume of corporate failures – and with no sign of any meaningful reduction in wholesale prices in the near future, there may be more to come.
The price cap currently stands at £1,277 per annum for an average consumption household paying for a dual fuel tariff by direct debit. The new level of the cap will be announced on 7 February, to take effect on 1 April.
Many analysts fear it could reach £1,900 or even £2,000, pushing many household budgets to breaking point.
Ofgem, the government and energy firms are exploring ways in which to reduce the impact of any price hike on customers.
The energy price cap that has shielded many UK households from the full impact of huge rises in natural gas prices this year could be about to change as part of a shake up by the industry regulator, Ofgem
Rules are being brought in to make sure the energy market doesn’t collapse, following a year in which 28 energy suppliers went bust. Part of the changes involve a review of the price cap.
It’s been an unprecedented year for energy company failures. Record natural gas prices – up by more than 250% since January – have put pressure on smaller suppliers with limited reserves, forcing many to fold.
Suppliers said they were hampered by the Ofgem energy price cap, which protected customers from spiralling prices but prevented firms from passing on their increased costs to bill payers.
Ofgem is seeking views on whether the price cap should be changed to better handle volatility in the market.
The price cap limits the rates a supplier can charge for their default variable rate tariffs. These include the standing charge and price for each kilowatt hour (kWh) of electricity and gas. Ofgem sets a new cap for each summer and winter, reflecting global wholesale prices.
The new level of the cap is announced in August and February, and the change takes effect in April and October. The last change was a 12% increase on 1 October, taking it to £1,277 a year for a household with average consumption levels.
The next update in April will be based on an agreed formula that takes account of wholesale energy prices between August 2021 and January 2022 – which means it’s likely to go up. Some commentators have said that a price rise of £300-£400 is on the cards.
The cap is due to end by the end of 2023, but may be changed or withdrawn sooner in light of 2021’s energy market troubles.
Ofgem’s announcement that it will review the energy price cap coincides with a sharp increase in inflation.
Consumer Price Index inflation rose from 4.2% to 5.1% in November, according to Office for National Statistics (ONS) data. Independent think-tank Resolution Foundation said the figures were likely to put a squeeze on living standards and predicted inflationary pressures would continue into early 2022.
From January 2022, suppliers will have to undergo financial stress testing to make sure they can withstand market pressures that could sink them if their finances aren’t robust enough.
Ofgem, which is bringing in the new rules, will step in where weaknesses are identified and work with suppliers to Boost their situations.
As well as the financial stress testing, supplier management boards will have to carry out self-assessments of their control frameworks and report back to Ofgem. The watchdog will also strengthen its existing ‘fit and proper’ energy licence criteria.
Other measures confirmed by the regulator include exploring how best to tighten rules around protecting credit balances, consulting on new financial licence requirements, and considering making suppliers pause their expansion plans beyond certain milestones (such as 50,000 and 200,000 customers) until Ofgem is satisfied they’re stable enough.
Many of this year’s corporate failures had fewer than 200,000 customers.
Ofgem’s Jonathan Brearly said: “Today, I’m setting out clear action so that we have robust stress testing for suppliers so they can’t pass inappropriate risk to consumers. I want to see more checks on staff in significant roles, and better use of data to help us regulate.
He added: “Our priority has been, and will always be, to act in the best interests of energy consumers. The months ahead will be difficult for many, and we are working with the government and energy companies to mitigate the impact as much as we can, particularly for the most vulnerable households.”
Zog Energy, which has 11,700 domestic customers, has ceased trading. Under regulator Ofgem’s safety net, which comes into play when a business fails, Zog’s customers’ energy supply will continue and funds that domestic customers have paid into their accounts will be protected, where they are in credit.
Domestic customers will also be protected by the energy price cap when they are switched to a new supplier by Ofgem, as part of its supplier of Last Resort protocol. Customers will be contacted by their new supplier, which will be chosen by Ofgem following a competitive tender process among other supplier
Update: Ofgem announced on 3 December that Zog’s customers will be taken on by EDF.
Ofgem’s advice to affected customers is to wait to be contacted by EDF with details of your the tariff and take a meter reading as soon as possible to smooth the transfer process. Switching to a new supplier is not recommended during the appointment of a new supplier.
Additionally, the current market conditions mean there are no deals available at less than the Ofgem price cap, meaning switching would bring no financial benefit.
Separately, Ofgem has appointed Scottish Power to take on the customers of Entice Energy and Orbit Energy, which closed for business last week (see story below). The 70,000 customers involved will be contacted by Scottish Power over the coming days and weeks. There will be no interruption to supply and the tariff they are moved to will be controlled by Ofgem’s price cap.
In a statement on its website, Zog blamed its decision on the failure of its wholesale gas supplier, Contract Natural Gas (see story below from 3 November). The notice says: “Zog Energy was founded to provide its customers with the best possible value energy.
“Throughout our time we have invested in the best value technology to keep costs down and purchased our gas in advance from Contract Natural Gas Ltd to keep the promise we made to customers to supply simple cheap domestic gas.
“However, Contract Natural Gas Ltd has withdrawn from the wholesale market and ceased to trade. Unfortunately, the administrators of Contract Natural Gas Ltd are unwilling to transfer the gas hedges we had previously agreed. This has put us in an untenable position of having to purchase gas at the current market rate and we have no choice but to cease to trade.
“Your energy supply will now be transferred to a new supplier. You need not worry; your supply is secure and funds that you’ve paid into your accounts will be protected if you are in credit.”
Failed energy firm Bulb will be funded by the taxpayer up to a reported £1.7 billion after it was placed into the Special Administration Regime (SAR) by the government and the market regulator, Ofgem.
The SAR process is designed to ensure there is no change to Bulb’s customers’ supply and to protect any credit balances they may have – customers have been told they need to take no action at this time. Anyone considering switching away from Bulb is likely to find that there are no competitive tariffs available and that their best option is to stay put.
The administrator, Teneo, will run the firm using funds provided by the taxpayer until its future is settled, which could mean selling it whole or in part, or closing it down and moving its customers to other firms.
The government says it will work to recoup its outlay, “ensuring that we get the best outcome for Bulb’s customers and the British taxpayer.”
Bulb is the first firm to go into the SA regime, which was created in 2011 in anticipation of a large supplier going to the wall. With around 1.7 million customers, it is over three times the size of Avro, the largest firm to cease trading in accurate months.
The 20-plus other energy firms that have gone bust since the summer have been through Ofgem’s supplier of Last Resort (SoLR) process, whereby a competitive bidding process is held to find another supplier that is willing to take on the failed company’s customers.
But wholesale prices are so high relative to Ofgem’s price cap, it is thought no supplier would be willing to take on Bulb’s business – it would effectively mean their operating at a loss.
Update: Entice Energy, which comprises both Entice Energy Supply Limited and Simply Your Energy Limited, and Orbit Energy have announced today (25 November) that they are ceasing to trade. As with other supplier failures (see stories below), customers’ supplies will be guaranteed by Ofgem, as will in-credit balances they have built up. Customers are advised not to switch, but to take a meter reading and wait to hear from their new supplier, as appointed by Ofgem.
In a statement to customers on its website, Bulb said: “We’ll continue to operate as usual so you don’t need to take any action. Your tariffs are not changing, and the price cap applies to all consumer energy tariffs. If you pay for your energy by top-up, your top-ups will continue to work as normal. If you’re in the process of switching to or from Bulb, your switch will continue.
“We’ll continue to supply 100% renewable electricity and 100% carbon neutral gas, and to protect credit balances for our domestic and business members throughout this process.”
Fuel prices on international wholesale markets have peaked recently, with fears of a cold winter ahead causing a surge in demand. This will heap further pressure on energy suppliers who cannot charge more for standard variable rate tariffs than the Ofgem price cap, which stands at £1,277 a year for a typical household.
Fixed rate tariffs, which are not subject to the cap, are on sale for several hundred pounds more than the variable tariff cap.
The cap is reviewed and adjusted twice-yearly. It is likely the next review, in February, will see a sharp increase to reflect higher wholesale prices. Some commentators suggest it could rise to £1,600 or more when the change is implemented in April.
Ofgem has announced a wide-ranging consultation on the way the cap operates (see story below).
Green energy supplier Bulb has announced it has taken “the difficult decision to support Bulb being placed into special administration”. The is the first time the arrangement – designed by the government and the regulator, Ofgem, to come into force following the failure of a large energy supplier – has been used.
The move means Bulb is the largest company to hit the rocks since the energy market was plunged into crisis by soaring wholesale prices earlier this year. Bulb has around 1.7 million customers in the UK, making it the seventh largest supplier. Some 24 smaller suppliers have already ceased trading in 2021.
Bulb says special administration “is designed to protect Bulb members, ensuring there’s no change to your supply and your credit balance is protected.”
The process means Bulb will continue to operate as normal, and there is no need for customers to take any action. The special administrator will be announced shortly. The arrangement will remain in force – paid for by taxpayers – until Bulb is able to restore it own financial health, the company is sold, or it is wound up and its customers are moved to another supplier.
Bulb offers variable rate deals that are controlled by the energy price cap, which is currently at £1,277 a year for households with typical usage. At present, there are no tariffs available under the price cap elsewhere on the market, meaning it is almost certainly not worth switching away from Bulb given the protections afforded by the special administration regime.
Bulb’s size means it is unrealistic for another company to take on its customer base, as has been the case with the 20-plus companies that have gone bust in accurate months under Ofgem’s ‘supplier of last resort’ regime. Companies taking on customers in such scenarios are not allowed to charge more than the Ofgem price cap (£1,277 a year for average households), and many say the level of wholesale prices would force them to operate at a loss as a result.
A notice on Bulb’s website says: “Special administration is designed to allow Bulb to continue to operate as usual so you don’t need to take any action. Your tariffs are not changing, and the price cap applies to all consumer energy tariffs.
“If you pay for your energy by top-up, your top-ups will continue to work as normal. If you’re in the process of switching to or from Bulb, your switch will continue. Smart meter installations and other metering work will continue.”
An Ofgem spokesperson said: “Customers of Bulb do not need to worry – Bulb will continue to operate as normal. Ofgem is working very closely with Government. This includes plans for Ofgem to apply to Court to appoint an administrator who will run the company. Customers will see no disruption to their supply and their account and tariff will continue as normal. Bulb staff will still be available to answer calls and queries.”
Bulb is also notable for offering 100% renewable electricity and 100% carbon neutral gas.
Energy market regulator, Ofgem, has today published a series of consultations on the future of its price cap. The aim is “to ensure that the price cap reflects the costs, risks and uncertainties facing energy suppliers.”
This could mean the cap being adjusted more frequently than every six months (in April and October), which is the cycle at present.
Many suppliers claim the level of the cap – £1,277 per annum for standard variable rate tariff customers with average consumption and £1,309 per annum for prepayment tariff customers with average consumption – is set too low relative to wholesale market prices for electricity and, particularly, gas.
Companies argue they are unable to pass on the true cost of buying energy, resulting in them operating at a loss. Over 20 suppliers have ceased trading in accurate months.
However, the cap has already risen substantially this year – by 9% in April and by 12% in October – placing huge pressure on household budgets. The Office for National Statistics and the Bank of England have stated that energy prices are a key contributing factor to inflation hitting its highest level for 10 years last month, at 4.2%.
The cap will be adjusted again in April 2022, with the change announced in February. There are fears that the rise could add a further £300-£400 to annual bills.
One of the consultations issued today will look at whether accurate market volatility “has caused the level of the price cap to materially depart from the efficient cost level allowed for in the price cap”.
In other words, Ofgem wants feedback on whether the current level of the cap is sufficient to allow suppliers to cover their expenses and make an agreed level of profits.
A second consultation will analyse the process for updating the methodology that determines the level of the cap. Ofgem is proposing to modify its licence to allow it to amend the cap outside the current April-October six-month cycle in exceptional circumstances.
Further details of these and other consultations on technical aspects of the price cap can be found here.
Stakeholder views are invited on any aspect of these documents by 17 December 2021, with findings and decisions to be published in the New Year.
Update 22 November: British Gas has been appointed the ‘supplier of last resort’ for customers of Neon Reef and Social Supply, which ceased trading earlier this month (see following story).
Two more energy companies have ceased trading, bringing the total of failed suppliers in 2021 alone to 24. The unprecedented market upheaval is attributed to sustained high prices on wholesale markets, which suppliers are largely unable to pass on the their customers because of the regulatory price cap (see stories below).
The two latest casualties are Neon Reef and Social Energy Supply. Last week Ofgem listed Social Energy Supply among the companies that were in default on their required payments to the energy market Feed-in-Tariff (see below).
Neon Reef supplies around 30,000 domestic electricity customers, and Social Energy Supply Ltd supplies around 5,500 domestic customers.
Under the safety net arrangements maintained by the regulator, Ofgem, both firms’ customers will see no interruption to their supply, and funds paid into their accounts will be protected, where they are in credit. As is always the case when a company goes out of business, Ofgem will appoint a new supplier for each firm’s domestic customers, who will be protected by the energy price cap when switched to the new firm.
This means their new tariff will cost no more than £1,277 per annum if they are a typical household with average consumption (£1,309 for prepayment customers). The cap regulates the amount suppliers can charge per unit of gas and electricity and for any standing charge, so real bills are always determined by the amount of energy used.
As some customers of the failed firms may have been on cheaper deals, they may see their bills rise when they move to their new supplier.
Ofgem will appoint new suppliers in the coming days after a competitive bidding process. The newly-appointed firms will then contact customers with details of the new arrangements. Customers are advised not to switch until the process is complete, but they are recommended to take a meter reading as soon as possible to smooth the transfer process from the old firm to the new one.
Ofgem, the energy market regulator, has ordered five suppliers to pay more than half a million pounds they owe or face losing their licences.
The suppliers owe Ofgem a collective £575,000 worth of payments into a government scheme that compensates owners of small-scale renewable energy generators.
All energy suppliers are obliged to pay into the Feed-in-Tariff scheme as part of their licence conditions, but five suppliers missed the November 10 deadline for payments this week.
The lion’s share of the missing payments are owed by Orbit Energy (£451,296), while the rest of the debt is owed by Delta Gas and Power (£46,701), Social Energy Supply (£28,735), Simply Your Energy/Entice (£28,353) and Whoop Energy (£19,013).
Ofgem has told the suppliers to pay what they owe immediately or face enforcement action that could include financial penalties or stripping them of their licences.
The demand comes at a challenging time for smaller energy firms struggling to keep up with rising wholesale prices – particularly for natural gas, which has risen in price by 250% since the beginning of the year.
Twenty suppliers have folded since the summer, including six this month, affecting more than two million domestic energy customers.
Affected customers are protected by Ofgem’s safety net that guarantees their supply, moves them onto another supplier’s books and preserves money they have paid into their accounts, where they are in credit.
Customers of firms that cease trading are advised not to switch before the transfer to the new Ofgem-appointed supplier is completed.
In line with its market ‘safety net’ protocols, energy regulator Ofgem has appointed suppliers to take over the energy supply of customers of companies which have recently ceased trading due to adverse market conditions, primarily soaring wholesale price for natural gas.
Ofgem – which regulates both domestic and commercial suppliers – says the changes will affect 70,600 domestic and non-domestic customers.
The changes announced today include:
Ofgem runs a competitive process to get the best deal for consumers. The process ensures that there is no interruption to supply and that energy supplies will continue as normal after customers are switched over to their new suppliers.
Funds paid by current and former domestic customers into their accounts will be protected by Ofgem, where customers are in credit. Domestic customers will also be protected by the energy price cap with their new supplier, which means they will pay no more than the current cap (£1,277 for average use households) on their new tariff.
Customers whose suppliers have ceased trading will be contacted over the coming days about the changes. If customers wish to switch supplier, they can shop around but Ofgem is advising them to wait until the transfer has been completed.
They are recommended to take meter readings as soon as possible, as this will smooth the switch to the new supplier.
If, in due course, customers decide to switch to another supplier, they will not be charged exit fees.
Neil Lawrence, Ofgem’s director of retail, said: “We understand this news may be unsettling for customers, but they don’t need to worry. Their energy supply will continue as normal, and domestic customer credit balances, as well as some non-domestic credit balances, will be honoured.
“Your energy supply will not be interrupted, and your newly appointed supplier will be in contact over the coming days with further information. If customers wish to switch suppliers they can shop around if they wish, but they are advised to wait until the transfer has been completed.”
CNG Energy Limited, a business energy supplier with around 41,000 non-domestic customers, has gone out of business. A message on its website reads: “After 27 years we are saddened to say CNG Energy Limited is ceasing to trade.”
The news comes after the demise earlier this week of five energy firms with domestic customers (see story below).
As is always the case when energy firms go bust, the regulator, Ofgem, will ensure continuation of supply to CNG’s customers. However, the part of Ofgem’s safety net that guarantees that any funds which domestic customers have paid into their accounts will be protected, where they are in credit, does not apply in the case of CNG’s commercial clients.
Similarly, whereas domestic customers of a failed supplier are protected by Ofgem’s energy price cap when switched to a new supplier, business customers do not have this certainty.
The status of CNG customers in terms of credit balances and tariff rates will be determined by their new supplier, which will be appointed by Ofgem in the coming days.
CNG customers are being urged not to switch before being moved to their new supplier. But they should take meter readings to ease the transfer process when it happens.
In a dark day for the UK energy market, four more energy providers have ceased trading, joining Bluegreen Energy, whose demise was announced yesterday.
The latest victims of the crisis, caused by a steep rise in wholesale energy prices of the past 12 months, are:
Under Ofgem’s safety net, customers’ energy supply will continue and funds that domestic customers have paid into their accounts will be protected, where they are in credit. Domestic customers will also be protected by the energy price cap when being switched to a new supplier.
Customers of these suppliers will be contacted by their new supplier, which will be chosen by Ofgem. See story below for further information on the process of moving to a new supplier.
Ofgem, the energy market regulator, has announced that Bluegreen Energy Services Limited is ceasing to trade.
Bluegreen Energy supplies around 5,900 domestic customers and a small number of non-domestic customers. In a statement it said: “Due to the energy crisis in the UK, we find ourselves in an unsustainable situation and regrettably, Bluegreen Energy Services Limited is forced to make the difficult decision to cease trading.”
Ofgem’s safety net means customers’ energy supply will continue, and funds that domestic customers have paid into their accounts will be protected, where they are in credit.
Domestic customers will transferred en bloc to a new supplier, chosen by Ofgem, in the next few days. The new tariff they are moved to will be priced no higher than the regulator’s price cap, which limits how much suppliers can charge for each unit of gas and electricity used.
The current cap works out at £1,277 a year for a typical household with average consumption. The way the cap is set is under close scrutiny at present, with energy suppliers saying it obliges them to operate at a loss because wholesale energy prices are so high. But any increase in the cap when it is next reviewed early in 2022 will heap pressure on already-stretched household budgets.
Last week Ofgem announced a consultation process on the structure and operation of the cap.
Ofgem’s advice to Bluegreen Energy customers is not to switch supplier for the moment. It says they should:
Ofgem, the energy market regulator, has appointed Shell Energy Retail to take on the customers of failed energy firms GOTO, Pure Planet, Daligas and Colorado Energy.
The move affects a combined total of approximately 275,000 domestic customers and 600 non-domestic customers.
As with other customer transfers (see stories below), any credit balances that domestic customers have paid into their accounts will be protected, and there will be no interruption to supply.
Domestic customers will be moved onto a Shell Energy tariff that is limited by Ofgem’s energy price cap, which currently stands at £1,277 a year for households using an average amount of energy. Once the transfer is completed, customers are free to switch without penalty. However, because of current market conditions arising from the high price of wholesale natural gas, it is unlikely that deals will be available below the level of the cap until early 2022.
Customers of all three suppliers will be contacted over the coming days about the changes. Ofgem says they should wait for Shell Energy to get in touch and should not switch in the meantime.
GOTO Energy Limited is ceasing to trade with immediate effect. The firm supplies gas and electricity to 22,000 domestic customers. It is the thirteenth supplier to go bust since September as the UK market reels from the effects of rocketing wholesale energy prices.
Under the safety net provisions overseen by the energy regulator, Ofgem, customers’ energy supply will continue without interruption. Funds that domestic customers have paid into their accounts will be protected, where they are in credit.
Domestic customers will be switched as a block to a new supplier by Ofgem. The new tariff they are given will be protected by Ofgem’s energy price cap, which stands at £1,277 a year for households with typical consumption. The size of bills will always be determined by the amount of energy consumed.
Tariffs operating within the cap are currently the cheapest on the market thanks to the unprecedented price of wholesale energy on international markets. However, customers are free to switch away from the new supplier, without penalty, if they choose to do so.
Ofgem’s advice to affected customers in the meantime is to:
Daligas Limited has announced it is ceasing to trade. The announcement comes the day after Pure Planet and Colorado Energy closed their doors, leaving 250,000 domestic customers to rely on the regulator Ofgem’s safety net (see story below).
The failure of Daligas means 12 energy suppliers have collapsed since the beginning of September. They have all been hit by the high cost of energy – particularly natural gas – on wholesale markets.
With 9,000 domestic and commercial customers, Daligas Limited, a gas-only supply firm, is one of the smaller businesses in the sector, but the announcement today will be seen as further evidence of the turbulence affecting the UK energy market as a whole.
In order to run cheap tariffs when wholesale prices are rising rapidly, companies need to have bought substantial stocks at affordable prices – a process known as hedging. Many smaller firms with modest capital resources have not been able to secure long-term supplies, and have found current spot prices out of their reach.
Additionally, the Ofgem price cap on how much firms can charge those on their variable rate ‘default’ tariffs means firms cannot pass on the full cost of wholesale energy bought today to their customers.
As with previous corporate failures, Daligas’ domestic customers’ supply will be guaranteed by Ofgem, along with any credit balances, until a new supplier is found to take on their business. An announcement regarding the new supplier may be made in the coming days, although reports suggest the remaining viable suppliers are growing increasingly wary of taking on new customers en bloc given that they would have to service them at a loss.
If Ofgem is unable to secure a ‘supplier of last resort’ to absorb the customers of a failed company, it has the power to appoint a special administrator to run the failed business until such time as a permanent replacement can be found.
The costs associated with transferring customers to a new supplier are said to run into hundreds of pounds per account – a cost that would eventually filter through to all energy bills via charges levied on the surviving suppliers.
The regulator says customers of all failed firms, including Daligas, should sit tight and not switch but instead wait until they hear from their new supplier. They should, however, take a meter reading as soon as possible to provide to the new supplier in due course.
Pure Planet Limited and Colorado Energy Limited have announced they are ceasing to trade. Pure Planet supplies gas and electricity to around 235,000 domestic customers and Colorado Energy supplies gas and electricity to around 15,000 domestic customers.
They bring to 11 the total of energy firms that have gone bust since the beginning of September as a result of the pressures arising from soaring wholesale prices (see stories below).
The market regulator, Ofgem, operates a safety net to ensure customers’ energy supply will continue and any credit in customers’ accounts will be protected. Domestic customers with the firms will be moved en masse to new suppliers by Ofgem, where they will be protected by the energy price cap, which currently stands at £1,277 a year for typical consumption dual fuel households on standard variable rate default tariffs.
Customers will be contacted by their new supplier, which will be chosen by Ofgem over the coming days.
Ofgem’s advice to those affected is to:
Ofgem says it is working closely with government and industry to make sure customers continue to be protected this winter. Neil Lawrence, Director of Retail at Ofgem, said: “Our number one priority is to protect customers. We know this is a worrying time for many people and news of a supplier going out of business can be unsettling.
“I want to reassure affected customers that they do not need to worry. Under our safety net we’ll make sure your energy supplies continue. If you have credit on your account the funds you have paid in are protected and you will not lose the money that is owed to you.
“Ofgem will choose a new supplier for you and while we are doing this our advice is to wait until we appoint a new supplier and do not switch in the meantime. You can rely on your energy supply as normal. We will update you when we have chosen a new supplier, who will then get in touch about your tariff.”
Customers who have questions should visit the FAQs on the Ofgem website.
Ofgem, the energy market regulator, has appointed major supplier E.ON Next to take on the customers of Enstroga, Igloo Energy and Symbio Energy, which announced last week that they were ceasing to trade (see below). The move swells E.ON Next’s customer roll by 233,000 households.
The switch, announced today, is effective from yesterday. Ofgem guarantees that there will be no interruption to supply, as is always the case when customers are transferred to a new supplier. Any account credit balances are also protected. The regulator urges customers not to switch until the transfer process is complete.
Transferring customers will be protected by the energy price cap, which rose to £1,277 per annum on Friday for standard variable rate ‘default’ tariff customers using a typical amount of energy. Many ENSTROGA, Igloo Energy and Symbio Energy customers will therefore see an increase in their bills if they have previously have been on a cheaper fixed rate deal.
However, the current energy market crisis (see below) means these cheaper deals have been withdrawn from sale, leaving default tariffs governed by the cap as the lowest-priced available in most cases.
That said, transferred customers are free to shop around and switch once their move to E.ON Next is finalised. Customers will not be charged exit fees if they decide to switch to another supplier at that time.
Anyone whose switch was already in progress when their original supplier went out of business will have their switch honoured.
Further information can be found on E.ON Next’s website:
Ofgem, the energy regulator, has announced that three more energy suppliers are ceasing to trade. This means nine firms have closed their doors in accurate weeks in response to soaring wholesale energy prices, which meant they were effectively operating at a loss (see stories below).
Today’s announcement lists Igloo Energy (179,000 domestic customers) Symbio Energy (48,000) and ENSTROGA (6,000) as the latest failures. Ofgem says that together they represent less than 1% of domestic customers in the market. In total, approaching two million households have been affected by accurate collapses.
Under Ofgem’s safety net, customers of the failed firms will continue to receive gas and electricity without interruption and any credit balance in customer accounts will be protected and honoured when a new supplier is appointed for each company.
Domestic customers of each firm will be moved en bloc to their respective new supplier’s deemed tariff. This will be subject to Ofgem’s price cap, which stands at £1,277 (as of 1 October) for households with typical usage.
The new suppliers will contact customers with more information in due course. Ofgem normally appoints ‘suppliers of last resort’ within a matter of days. No action is required by customers in the meantime beyond taking a meter reading as soon as possible. There is no need to switch suppliers. This will become an option once the transfer to the new supplier is finalised.
Neil Lawrence at Ofgem said: “Our number one priority is to protect customers. We know this is a worrying time for many people and news of a supplier going out of business can be unsettling.
“I want to reassure customers of ENSTROGA, Igloo Energy and Symbio Energy that they do not need to worry. Under our safety net we’ll make sure your energy supplies continue. If you have credit on your ENSTROGA, Igloo Energy or Symbio Energy account the funds you have paid in are protected and you will not lose the money that is owed to you.
“Ofgem will choose a new supplier for you and while we are doing this our advice is to wait until we appoint a new supplier and do not switch in the meantime. You can rely on your energy supply as normal. We will update you when we have chosen a new supplier, who will then get in touch about your tariff.
“In recent weeks there has been an unprecedented increase in global gas prices which is putting financial pressure on suppliers. Ofgem is working closely with government and industry to make sure customers continue to be protected this winter.”
Customers of failed energy company Green supplier will now be serviced by Shell Energy, the energy regulator Ofgem has announced. The transfer of 255,000 domestic customers and a small number of non-domestic customers becomes effective immediately, and Shell Energy will contact those concerned over the coming days and weeks.
Ofgem said yesterday that Octopus has taken on customers of Avro Energy, which announced last week that it was ceasing to trade. Other companies to announce their closures in accurate weeks include PfP Energy, MoneyPlus Energy, People’s Energy and Utility Point (see stories below).
As also detailed below, Ofgem’s safety net procedures ensure continuity of supply and safeguard credit balances while the transfer of accounts takes place.
Customers of failed companies will be moved to ‘deemed’ contracts with their new supplier, with prices controlled by the Ofgem price cap.
Green supplier customers can contact Shell Energy for more information: 0330 094 5804 or at Green@shellenergy.co.uk.
Further company closures are expected as suppliers struggle to meet the rising cost of energy on wholesale markets, with the energy cap limiting how much of this additional cost they can pass on to their customers.
The government and Ofgem have issued statements reassuring consumers that there is no threat to supply in the UK over the winter months.
Energy market regulator Ofgem has appointed Octopus Energy to take on the 580,000 domestic customers of Avro Energy, which announced that it is ceasing to trade last week. The move takes effect from today (26 September).
Green supplier Limited also announced last week that it is ceasing to trade. An announcement is expected in the next few days about which company will take on its 255,000 customers under Ofgem’s ‘safety net’ process.
This guarantees that customers of any failed energy company will not see any interruption to supply while their account is transferred to the new company, known as the ‘supplier of last resort’. Any credit balance is also safe-guarded.
Octopus will contact Avro customers over the coming days to provide information on the change-over. Customers will be moved to a ‘deemed’ contract which will have a maximum price per unit of energy in line with the Ofgem price cap.
On 1 October, this moves to £1,277 a year for a household with typical consumption levels, an increase of 12%. With many cheaper fixed deals having been withdrawn from the market, this is likely to represent good value at present, although many Avro customers will inevitably find themselves paying more than previously.
Once the move to Octopus is complete, Avro customers are free to switch to another deal.
Ofgem says there is no need for Avro customers to cancel any direct debits they have with the firm. It says: “You don’t need to cancel your direct debit, but can if you wish to. Octopus Energy will be in touch with you about whether your existing direct debit will remain in place, or whether they will set up a new direct debit.”
More information can be found at www.octopus.energy/avro and on the Ofgem website.
The government has taken the unusual step of publishing a Q&A to enable consumers “to find out more about energy prices and energy suppliers.”
At Forbes Advisor, we have addressed these issues on this page and elsewhere, covering important issues such as the default tariff price cap and the safety net which ensures continuity of supply to customers of failed energy suppliers.
But we thought it would be interesting for you to read the government’s own views on such topics, as published today…
You don’t need to be. While global wholesale gas prices are currently high we are confident that the UK’s security of energy supply is secure now and over the winter.
No you don’t. Even if your supplier stops operating, Ofgem – the independent energy regulator – will automatically switch you onto a new supplier so there will be no interruption to your supply of energy.
It isn’t unusual for energy suppliers to exit the market so there’s a well-rehearsed system in place to protect households and ensure your gas and electricity keeps running.
Customers of failed suppliers who are switched to a new supplier are protected by the Energy Price Cap.
This is a government scheme which protects millions of people from sudden increases in global gas prices and limits the amount an energy supplier can charge those on default or standard variable rates.
Suppliers cannot charge customers of failed suppliers more than the level of the price cap.
Major energy suppliers also purchase much of their wholesale supplies many months in advance, giving protection to them and their customers from short-term price spikes.
We also have numerous other schemes available to support vulnerable and low-income households including the Warm Home Discount, Winter Fuel Payments and Cold Weather Payments.
The Energy Price Cap is reviewed twice a year based on the latest estimated costs of supplying energy and it was announced in the summer that from 1 October, the cap would rise due to higher wholesale gas prices.
However, the next time the price cap is due to be updated is April 2022 which means customers who it protects needn’t worry about it increasing before then.
Gas storage capacity has little bearing on the price of gas. Some other countries do store gas to ensure their own security of supply, but the UK benefits from having access to a highly diverse and secure sources of gas from the North Sea and reliable import partners like Norway.
The energy market watchdog, Ofgem, has ordered five small suppliers to pay around £765,000 they owe a government renewables scheme. Many energy suppliers’ finances are stretched almost to breaking point by rocketing wholesale energy prices.
Colorado Energy, Igloo, Neon Reef, Whoop Energy and Symbio Energy have failed to pay into the Feed In Tariff (FIT) scheme which provides payments to owners of small-scale renewable energy generators.
FIT is designed to promote the uptake of smaller scale renewable and low-carbon electricity generation. Suppliers are obliged to pay into the scheme as a condition of their supply licences, and so the regulator, which administers the FIT scheme, is demanding they each pay their dues.
The deadline for payments was September 17. Colorado Energy still owes £261,406.12, Igloo owes £316,582.44, Neon Reef £37,350.76, Whoop Energy £3,780.22 and Symbio Energy £146,238.66.
Ofgem says the missed payments will delay onward payments to renewable energy generators. It has warned the five suppliers that if payments aren’t made, it could take enforcement action that could include stripping them of their licences or imposing financial penalties.
The Ofgem demands will heap extra pressure on the finances of the companies concerned at a time when the fragility of some energy suppliers’ capital resources has been exposed by rising wholesale prices. Six smaller suppliers have collapsed in accurate weeks, with Avro Energy and Green supplier Limited today becoming the fifth and sixth suppliers to fold of late, affecting over 800,000 customers (see story below).
The other four suppliers to stop trading recently (PfP Energy, MoneyPlus Energy, People’s Energy and Utility Point), had around 600,000 customers on their books.
Affected customers’ accounts are being transplanted into one of the UK’s major energy suppliers as part of Ofgem’s ‘safety net’ process that ensures supplies to people’s homes aren’t cut off and credit balances are protected.
Ofgem appointed EDF Energy to take on 220,000 Utility Point customers and British Gas to do the same for People’s Energy customers.
Amid rising fears of further supplier collapses, business secretary Kwasi Kwarteng MP told Parliament last week that it would not subsidise ailing energy firms.
He said: “The government will not be bailing out failed companies. There will be no rewards for failure or mismanagement. The taxpayer should not be expected to prop-up companies who have poor business models and are not resilient to fluctuations in price.”
Kwarteng also said suggestions of a return to 1970s-style blackouts and three-day working weeks were alarmist and unhelpful.
Avro Energy and Green supplier Limited have ceased to trade, the fifth and sixth energy suppliers to close their doors in little over a week.
Avro Energy supplies gas and electricity to around 580,000 domestic customers while Green supplier Limited supplies gas and electricity to around 255,000 domestic customers and a small number of non-domestic customers.
Together they account for just under 3% of domestic customers in the market.
Ofgem’s safety net will ensure there is no interruption to the energy supply of customers of the firms, and outstanding credit balances (of domestic customers) will be protected.
Domestic customers will also be protected by the energy price cap when switched to a new supplier as part of the regulator’s process in such situations.
Ofgem’s advice to Avro Energy and Green supplier Limited customers is to:
This will make the process of transferring customers over to the chosen supplier, and paying back any outstanding credit balances, as smooth as possible.
The taxpayer is to fund the operations of a US-owned fertiliser producer that has mothballed two UK plants because of soaring energy prices.
The move comes as the government grapples with the deepening energy crisis which has pushed a number of suppliers into bankruptcy and threatened millions of consumers and businesses with higher energy bills. But it has ruled out state backing for energy suppliers facing insolvency and closure.
Four energy companies have ceased trading in accurate days, with more expected to follow. Customers of the failed suppliers are automatically transferred to a new supplier, without loss of supply and with credit balances protected, thanks to a ‘safety net’ operated by energy market regulator, Ofgem.
The government’s three-week deal with CF Fertilisers, announced by Kwasi Kwarteng MP, business secretary, will secure supplies of CO2, which is a by-product of its manufacturing process.
CF Fertilisers produces around 60% of the UK’s CO2, which is used in the slaughter of animals such as poultry and pigs, in food packaging and in the production of carbonated drinks, and has many applications across industry, including in the health and nuclear sectors.
Under the terms of the deal, the government will provide “limited financial support” for CF Fertilisers’ operating costs at its Teesside plant for three weeks “while the CO2 market adapts to global gas prices”.
Mr Kwarteng had earlier made an address to Parliament in which he said: “We have sufficient capacity and more than sufficient capacity to meet demand, and we do not expect supply emergencies to occur this winter.
“There is absolutely no question of the lights going out, or people being unable to heat their homes. There’ll be no three-day working weeks, or a throw-back to the 1970s. Such thinking is alarmist, unhelpful and completely misguided.”
He stressed, however, that the government will not pump money into energy suppliers to keep them afloat: “The government will not be bailing out failed companies. There will be no rewards for failure or mismanagement. The taxpayer should not be expected to prop-up companies who have poor business models and are not resilient to fluctuations in price.”
As well as stressing the merits of the Ofgem safety net, Mr Kwarteng said the regulator’s energy price cap “isn’t going anywhere” and would remain in place to protect customers from “price spikes”.
The cap applies to default standard variable rate and prepayment tariffs and benefits around 15 million households. Such tariffs have historically been among the most expensive on the market but increasing wholesale prices mean hitherto cheaper fixed rate deals have been withdrawn from the market in many instances.
The latest iteration of the Ofgem price cap comes into effect on 1 October and will remain in place until 31 March 2022. The net effect of the cap is to isolate the tariffs concerned from further increases in the wholesale cost of energy.
This means many suppliers will be selling gas and electricity to consumers at less than cost price, which is why more supplier failures are expected.
The cap is expected to rise steeply when the next adjustment is made in April next year. The new level will be announced in February and will reflect wholesale prices in the second half of 2021.
Mr Kwarteng insists that the reduction in the number of suppliers should not result in a reduction in competition: “We must not see a return to the ‘cosy oligopoly’ of years past, where a few large suppliers simply dictated to customers conditions and pricing.”
For more information on how to respond to the energy crisis, see our stories below.
As the government holds emergency meetings with the energy sector and commentators predict further failures of small and medium suppliers, these are worrying times for customers. So what, if anything, should you be doing?
Your course of action will largely depend on your current energy arrangements. Here’s the answers to some common questions to help you ensure you’re getting the best value possible in a turbulent and troubled market.
If you’re not sure what tariff you have, or even who your supplier is, dig out a accurate bill (or bills, if you have separate suppliers for electricity and gas). Here you will find all the information you need about your energy firm or firms, along with details of your tariff(s).
If you’ve never switched supplier or haven’t done so for more than a couple of years, you are likely to be on a default (SVT) deal – around 11 million households in the UK have one of these tariffs, where the price you pay can be adjusted by your supplier at any point, provided it gives you 30 days’ notice of any increase.
Prior to the current pricing crunch, these open-ended default deals were among the most expensive on the market, and the advice was always to switch to a cheaper fixed-rate, fixed-term contract – there were usually dozens available.
But that has changed. At present, default deals are among the most competitive. You can still run an energy quote to see if there’s anything cheaper available, but it is likely that your best bet will be to sit tight and wait for prices to reduce.
Maximum default tariff prices are governed by a cap managed by Ofgem, the energy market regulator. This is adjusted each April and October, and next month it will increase by 12% to £1,277 for typical consumption households, and suppliers are increasing their prices to take full advantage.
That increase is a scary amount – but such is the crisis in the wholesale energy market, default deals are still likely to be among the best value of those available.
Prepay tariffs – around four million UK homes have one – are also subject to an Ofgem cap. This will rise by £153 to £1,309 on 1 October (again for those with average consumption levels).
Checking to see if there’s a cheaper deal is always a good idea, but as with default tariffs, you may find you’re on a competitive plan, even after the upcoming price rise.
Some 13 million UK homes are on fixed rate tariffs, where the price per unit of energy used is locked in for a specific period, usually 12 or 24 months.
Traditionally, these have offered the best value, with prices often hundreds of pounds below the Ofgem price cap – and guaranteed not to change, regardless of what happens in the wider market. But over the past week or so, fixed tariff rates have rocketed, and many companies have stopped offering them to new customers.
If you’re on a fix already, it’s almost certain that your best bet is to stay put until it ends. At this point, if you do nothing, you’ll move to your supplier’s default variable rate tariff. But as your tariff end date approaches, you can run a quote to see if there’s another, cheaper fix to which you can move (if you switch within six weeks of your tariff ending date, you won’t pay any exit fees if your current deal levies them).
It may work out that the default deal represents good value at the time – or you can ask your current supplier if they have another tariff that would cost you less.
Remember, you can switch from a variable rate deal at any point without penalty, so if you move to one, you can switch away should a cheaper deal become available elsewhere.
A relatively small number of households are on ‘elected’ variable rate deals that, until recently, were priced below the level of expensive default variable rate options. In fact, they were on a par or even cheaper than fixed-rate offers.
However, prices for these competitive variable rate tariffs have increased and many have been withdrawn from the market for new customers. So if you are on one of these plans, you should talk to your supplier to check it doesn’t have a cheaper option.
If that doesn’t work, you should run an energy quote to see if there is a better deal out there – including among standard variable rate deals.
We’re hearing a lot of speculation in the press that a clutch of smaller to medium-sized energy suppliers could go bust in the coming days and weeks if the government does not step in with a radical support package.
The important thing to remember is that Ofgem, the regulator, has continuity of supply as its priority, so it will work to ensure that customers of any company that goes to the wall are transferred to another supplier – this is the so-called ‘safety net’ that ensures customers are not left without power.
Again, the government says it is exploring ways to make the safety net as robust as possible. This could involve advancing state-backed loans to encourage firms to take on customers from failed suppliers.
If you are concerned about your energy supplier’s viability, switching to another firm may not be the best course of action at present. First, you may not be able to find a reasonable tariff to move to, and second, your interests will always be guarded by the safety net.
That’s not to minimise the anxiety that such situations can bring about – hearing that your supplier has gone bust will always be a shock. But it should be of comfort to know that a system is in place to make sure any negative impact is kept to an absolute minimum.
What’s Happening In The UK Energy Market?
There are currently no energy deals priced below standard tariffs, so we have temporarily suspended our switching service.
Energy market regulator Ofgem has appointed large energy supplier EDF to take on the 220,000 domestic customers of Utility Point and arranged for British Gas to do the same for People’s Energy after the two smaller firms ceased trading last week (see story below).
Whenever an energy company ceases trading, Ofgem’s safety net protocols take effect to ensure customers’ energy supply is not interrupted and any credit balances held with the company are protected. Part of the process includes appointing a ‘supplier of last resort’, in these instances EDF and British Gas, following a competitive bidding round among interested suppliers.
The move comes as the wider energy market experiences unprecedented turmoil due to soaring natural gas and electricity prices on wholesale markets (see story below). Many suppliers are ceasing to market products to new customers because prices are so high. In many cases, the cheapest deals on offer are default standard variable rate tariffs, which historically have been among the most expensive on the market.
The amount suppliers can charge customers on default tariffs is limited by Ofgem’s price cap. This is rising by 12% to £1,277 per annum for a household with medium consumption on 1 October 2021. The increase was calculated in the summer before the current pricing crisis took full hold of international energy bourses, and is now reckoned to be far below what energy companies are paying for wholesale supplies (see story below).
There are fears that this will squeeze smaller suppliers with lower capital resources, leading to more corporate failures, a consolidation of the market into the hands of larger suppliers, and ultimately a reduction in competition.
Ofgem is also likely to increase its cap by a significant amount at the next opportunity in April 2022, possibly sending it above £1,550 a year for typical users.
The government is reported to be holding crisis talks with energy market representatives this weekend to ensure continuity of supply to homes and businesses.
Ofgem’s advice to Utility Point and People’s Energy customers is to wait for EDF or British Gas to contact them over the coming days with personalised information about their new ‘deemed’ tariff. Traditionally, ‘deemed’ tariffs were more expensive than others available from the same company or from the wider market, but unless wholesale market prices decline sharply, this may no longer be the case.
However, once their new account with their new supplier is set up, customers of the two failed firms are free to search for a cheaper energy deal if they so choose.
Ofgem said: “If customers wish to change their tariff or switch supplier, they should ask to be switched to another tariff, or shop around. You won’t be charged any exit fees. Waiting for them (EDF or British Gas) to contact you will be the smoothest way for any credit balances domestic customers had with Utility Point/People’s Energy to be honoured by EDF/British Gas.”
With regard to customers who pay by direct debit, Ofgem said: “You don’t need to cancel your direct debit, but can if you wish to. EDF/British Gas will be in touch with you about whether your existing direct debit will remain in place, or whether they will set up a new direct debit.”
Utility Point customers with smart meters were told: “Some customers with newer models of smart meter should see no loss in smart functionality. Unfortunately, customers with older smart meter models will see a loss of smart functionality, but their supplies will continue uninterrupted. EDF will upgrade these older meters for any customers who request it. Once the transfer to EDF is complete, they will take steps to restore smart functionality.”
Utility Point customers with further queries are asked to visit the EDF website or phone: 0333 009 7120.
People’s Energy customers should visit the British Gas website or call: 0333 202 1052 (if they have a credit meter, where they pay monthly or quarterly in arrears) or: 0333 202 9742 (if they have a pay-as-you-go meter.
These are turbulent times for the UK energy market – and the turmoil will inevitably be reflected in higher domestic energy bills. Here’s a rundown of what’s happening, how it might affect you, and what action you can take…
And they’re rising to record levels. Energy companies naturally seek to pass their higher costs onto their customers, so what happens on the wholesale markets sooner or later affects domestic and business customers.
How and when you’ll see the impact will depend on what sort of energy tariff you have, and how your supplier buys its wholesale supplies…
Ofgem’s cap limits the amount companies can charge their default tariff customers – about 11 million households in the UK. This cap is rising by roughly 12% on 1 October to allow suppliers to charge more because of rising wholesale prices.
Sadly, no. Ofgem did its sums based on what was happening to wholesale prices over the summer, and what it thought might happen over the autumn and winter. It turns out it underestimated the speed and scale of increases.
The new cap was calculated using a gas price of £63 per therm – it’s been as high as £177 per therm in accurate days, with a 12-month ‘forward price’ (what you pay if you commit to buying a year in advance) of up to £135 per therm.
With electricity, the price-per-therm used by Ofgem was £70, but it has hit £181 and has been trading at £140 for 12 months.
What seems certain is that the next review of the cap in February (to take effect in April) will see another leap upwards, with Ofgem possibly erring on the side of caution at that point and feeding in a meaty increase.
Some won’t. As you can read in the stories below, four energy suppliers have gone bust in the past few days, and more are likely to go to the wall in the coming weeks and months.
But as we also explain, no-one will be left without supply. Ofgem’s safety net means customers are transferred to another supplier automatically.
Such is the crisis in the domestic market at the moment that most suppliers have withdrawn most or all of their deals – they simply cannot afford to take on new customers. But we can expect more deals to come onto the market once wholesale prices settle – as they are likely to do once supply issues are resolved.
If you’re on a fixed rate tariff with a good few months left to run, it’s probably best to sit tight and see what the market conditions are as you approach the end of your term.
If your fix is nearing its end, keep checking the market to see if you can spot a reasonable deal. And talk to your current provider to see what they can offer, either as far as a replacement fix is concerned, or regarding their default tariff. As noted earlier, the default may even prove the better bet at present.
If you’re on a variable tariff, it’s once again a case of watching for competitive deals, either from the market selection or from your existing supplier.
Two more smaller energy companies – People’s Energy and Utility Point – have ceased trading as of today, confirming the crippling effect of soaring wholesale prices on the UK energy market. Last week, PFP Energy and MoneyPlus Energy also closed their doors (see below).
Market commentators say rising costs will result in more casualties among energy firms this winter. You can find out here what happens if your energy supplier goes bust.
The market regulator, Ofgem, is advising the estimated 500,000 customers of People’s Energy and Utility Point not to take any action until it has appointed a new supplier. The affected households will not suffer any interruption to supply and any credit balances will remain in place.
Once the new supplier is appointed, customers will be free to switch to another provider if they so choose.
On its website, People’s Energy said: “We are saddened to inform you that People’s Energy is ceasing to trade. Please rest assured that your energy supply is secure and all domestic members’ account credit balances are protected. This includes any accurate top-ups that were made as part of the seasonal weighting initiative.
“Ofgem, the energy regulator, will be appointing a new supplier for all our members. Their advice is not to switch, but to wait until they appoint a new supplier. This will reduce any risk of disruption in supply and facilitate the transfer of, and access to, domestic customers’ credit balances.”
Utility Point said: “It is with regret that we must announce that Utility Point is ceasing to trade. Customers need not worry, their supplies are secure and domestic credit balances are protected.
“Ofgem’s advice is not to switch, but to wait until they appoint a new supplier for you and also a to take a meter reading ready for when your new supplier contacts you. This will help make sure that the process of handing customers over to a new supplier, and honouring domestic customers’ credit balances, is as hassle free as possible for customers.”
Two of the UK’s smaller energy suppliers – PfP Energy and MoneyPlus Energy – have ceased trading. The estimated 90,000 to 100,000 affected households will have their interests protected by the safety net operated by the market regulator, Ofgem.
Escalating wholesale gas and electricity prices are reported to be the root cause of these collapses. There are fears other suppliers could close over the winter if shortage of fuel supplies in the face of rising demand forces prices ever higher.
Green Network Energy, Simplicity Energy and Tonik Energy are among the suppliers who have gone bust in the past 12 months.
Whenever a firm is in financial difficulty, its situation is closely monitored by Ofgem. If closure becomes inevitable, the regulator finds an alternative supplier to take over the ailing firm’s customers, maintaining supply without interruption.
Customers are not required to take any action as Ofgem works with the firms concerned to honour credit balances and manage debt repayments.
However, customers who are moved to a new supplier will find themselves on a ‘deemed’ contract that is likely to be relatively expensive. It is at this point they should run an energy tariff comparison to see if they can switch to a cheaper alternative – which they are at liberty to do.
You can find out more about what happens when an energy supplier goes bust in Rachel’s article.
Evidence of the impact of rising wholesale prices came in August when Ofgem announced a steep increase in its price cap to allow companies to charge their standard variable rate ‘default’ tariff (SVT) customers more because of rising costs.
The £139 hike will take the cap to £1,277 for a household with typical consumption when it comes into effect on 1 October – its highest ever level since it was introduced in 2019. All the major suppliers have announced increases in their prices to match the higher cap (see below).
The cap is changed twice a year, in April and October. The expectation is that Ofgem will increase it further in April 2022 if there is no cooling in wholesale price inflation.
You can find out more about Ofgem’s price cap here.
Around 11 million households are on SVTs. The main alternatives are non-standard variable rate deals and fixed-term, fixed-rate deals, where the price per unit of energy used is fixed for a stated period, usually 12 or 24 months.
The price of these deals is also increasing, and some firms are offering fixed-rate contracts at a higher price than their SVTs. An effective way to find out whether you can save money by switching tariff and/or provider is to run a quotation on our site.
Switching takes 21 days and there is no interruption of supply. Work will only be required at your property if you change meters as part of the process.
Following its announcement of a 12% increase in the price of its default standard variable rate tariff (SVT) from 1 October, British Gas has offered to freeze SVT customers’ direct debit payments until February 2022.
The October hike is in line with the latest rise in the Ofgem price cap (see below) to £1,277 for households with average energy consumption levels.
British Gas says it will assess the market in February 2022 before making a final decision on changing direct debit payments to reflect the price increase. It says it will smooth out any increase over subsequent months.
Any SVT customers who would rather start paying the increased price immediately (to avoid a higher leap in their bills next year) can amend their direct debit via the British Gas app or by contacting the company.
Ofgem will also announce the next level of the price cap in February, to take effect in April. This will no doubt play into British Gas’s calculations.
The firm says its offer to freeze payments could be worth £50 to customers who take it up: “Freezing direct debit payments until after winter will keep an extra £50 in customers pockets. We want to deliver our direct debit customers the option to create a bit of extra financial breathing space if they need it.”
What’s Happening In The UK Energy Market?
There are currently no energy deals priced below standard tariffs, so we have temporarily suspended our switching service.
26 August 2021
Bulb is the latest major energy provider to announce a price rise for its standard variable rate (SVT) default tariff-holders.
The move follows the announcement on 6 August by the market regulator, Ofgem, that its energy price cap on default tariff prices will rise by over 12% on 1 October.
Typical Bulb customers will pay an extra £2.90 a week when the new, higher cap comes into effect.
Earlier this week OVO Energy announced a 12.25% increase in the price of its Simpler Energy default tariff, effective 1 October 2021. Customers of SSE Energy Services, which is owned by OVO, will see a similar increase.
Rival large firms Eon and Scottish Power will also be raising their prices by similar amounts in October. Ebico, Igloo, So Energy, Zebra and Orbit have also announced increases.
The new Ofgem cap, which applies to customers on SVT default tariffs, will stand at £1,277 for households with average consumption levels – up by £139 on the current level. It is now at its highest since it was introduced in January 2019.
The raft of price increases announced in accurate days take firms’ SVT tariffs up to or close to the cap. More increases are thought to be in the pipeline.
Details of the Ofgem price cap, including the figure for households with prepayment tariffs, can be found below.
EDF was the first company to respond to the price cap announcement last week, revealing its own 12% increase, again effective on 1 October.
British Gas, the UK’s largest supplier, is expected to announce a price increase for SVT-holders in the coming days.
Ofgem has raised the level of the cap to enable companies to charge more because they are facing significant increases in the price of wholesale energy, particularly natural gas.
Ofgem has urged customers on SVT default tariffs to shop around to potentially save ‘hundreds of pounds’ by moving to a cheaper tariff.
Energy giant EDF has become the first supplier to announce a price hike in line with the accurate increase in the official energy price cap administered by regulator Ofgem (see story below).
EDF’s move, which is expected to be matched by other leading providers, will take the typical cost of its standard variable rate ‘default’ dual fuel tariff to £1,277 – a 12% increase – from 1 October. This is the date on which the new Ofgem cap comes into effect.
Philippe Commaret at EDF said: “We know a price rise is never welcome, especially in tough times. In 2020, prices for our standard variable customers fell by an average of £100 a year, and we’ll cut prices again as soon as we’re able.
“As Ofgem has explained, it is global gas prices that have caused the unprecedented increase in wholesale energy costs and as a sustainable, long-term business we must reflect the costs we face.
“Customers on tariffs that are due to change in October will be written to, reminding them to check that they are on the best tariff for them.”
The regulator has raised the cap to £1,277 – it’s highest level since it was introduced in 2019 – so that suppliers can charge their default tariff customers more to take account of increases in the wholesale cost of energy, particularly natural gas.
Bulk prices have risen by 50% in the past six months due to cold weather and increasing demand triggered by industry emerging from Covid-19 lockdowns.
An estimated 11 million households are on various suppliers’ default tariffs, largely because they have never switched tariff or because they haven’t switched for two or more years and have moved to their supplier’s default deal as a result.
A further four million households are on expensive prepayment tariffs, where the Ofgem cap will also rise on 1 October, up £153 to £1,309.
Ofgem says this combined total of 15 million households could save “hundreds of pounds” on their annual energy bills by shopping around and moving to a cheaper deal.
Anyone switching now would be comfortably on their new tariff before 1 October – the process of finding a cheaper deal takes a matter of minutes, and the switch itself will be complete in 21 days.
There is no interruption to supply and no need for work inside or outside your property.
Energy market regulator Ofgem is raising its cap on standard variable rate default tariffs by £139 on 1 October 2021, it announced today. The 12% increase will take the cap, which applies to 11 million UK households, to £1,277 – its highest ever level.
The cap on prepayment tariffs will increase by £153 on the same day, taking it to £1,309. Around four million households will feel the effect of this rise.
Both caps will be reviewed over the winter and new levels will take effect in April 2022.
Ofgem imposes the cap to limit how much energy companies can charge customers on default and prepay tariffs, but it has increased the level because of soaring wholesale energy market prices, citing a 50% increase in the price of wholesale gas.
The quoted cap figures apply to households with average annual consumption. When households are on default tariffs, it’s usually because they have never switched provider or tariff, or because they have not switched for two years or more.
Many people in rented accommodation and on lower incomes have prepayment meter tariffs.
The Ofgem cap does not limit the size of bills but the amount the energy company can charge for each unit of gas and electricity used, plus any standing charges. Bills therefore differ according to consumption levels in each household.
Substantial savings can usually be obtained by those who switch from a variable rate default tariff to a fixed-rate or competitive variable rate deal (£477 is the minimum saving of the top 10% of savers who switched gas and electricity through Comparison Technologies, Forbes Advisor’s energy comparison partner, in the period between 1st Jan 2020 and 31st Dec 2020).
There are also competitive prepayment tariffs available to those willing to switch.
Ofgem commented: “Customers can avoid the increase by shopping around or asking their supplier to put them on a better deal.”
What’s Happening In The UK Energy Market?
There are currently no energy deals priced below standard tariffs, so we have temporarily suspended our switching service.
Those on default and prepay tariffs now have just under two months to switch energy provider or move to a cheaper tariff with their existing provider. The good news is that switching takes 21 days – and there is no interruption to supply or any need for work at your property, inside or out. Running a quotation takes a matter of minutes using our comparison service.
Jonathan Brearley, head of the energy market regulator, Ofgem, says its energy price cap could rocket by £150 from 1 October 2021. The real increase will be announced on Friday 6 August 2021.
The price cap applies to standard variable rate ‘default’ tariffs, and limits how much energy providers can charge for units of gas and electricity and any standing charge associated with the tariff. At the moment it stands at £1,138 a year for a typical household with average consumption.
An estimated 11 million households are on default tariffs, either because they have never switched provider or because they have been moved to a default arrangement by their provider following a previous deal coming to an end.
There is a similar cap in place for the estimated four million households with prepayment meters – it stands at £1,156 a year.
Most providers set their tariff prices at the maximum allowed by the cap. As the annual figure is a cap on unit rates rather than on the size of bills, the amount payable will always depend on the amount of energy used.
Mr Brearley says the cap will rise because global prices for fossil fuels, especially gas, are increasing at an unprecedented rate. Ofgem will enable suppliers to charge higher prices because they are paying more on wholesale markets.
“Regrettably, the increase in wholesale costs will feed through to the price cap and, although final analysis is not complete and other costs will also determine the overall level, it could add around £150 per household to the next level of the price cap,” he said.
Ofgem announces the change to the price cap in advance to allow those affected an opportunity to switch to a cheaper deal. The regulator actively promotes switching, pointing out that there are many cheaper tariffs available to those on default deals – often fixed-term, fixed-rate tariffs that lock in the unit price for 12 or 24 months.
Mr Brearley added: “While the price of these fixed contract deals is also increasing on the back of higher wholesale energy prices, if you shop around you may well still be able to save hundreds of pounds on your energy bill.”
Switching now would mean locking in today’s rates ahead of a further expected surge in wholesale prices in the autumn.
As we reported last week, the government is considering introducing automatic switching for those on default tariffs unless they opt out of the process.
However, this would not be introduced until 2024, leaving default customers vulnerable to relatively high energy costs for the next three years unless they choose to switch.
What’s Happening In The UK Energy Market?
*At least 50% of savers who switched via our partner of choice energyhelpline in the period between 1st Jan 2021 and 30th June 2021 saved £101.
Disaster recovery (DR) refers to the security planning area that aims to protect your organization from the negative effects of significant adverse events. It allows an organization to either maintain or quickly resume its mission-critical functions following a data disaster without incurring significant loses in business operations or revenues.
Disasters come in different shapes and sizes. They do not only refer to catastrophic events such as earthquakes, tornadoes or hurricanes, but also security incidents such as equipment failures, cyber-attacks, or even terrorism.
In preparation, organizations and companies create DR plans detailing processes to follow and actions to take to resume their mission-critical functions.
Disaster recovery focuses on IT systems that help support an organization’s critical business functions. It is often associated with the term business continuity, but the two are not entirely interchangeable. DR is part of business continuity. It focuses more on keeping all business aspects running despite disasters.
Since IT systems have become critical to business success, disaster recovery is now a primary pillar within the business continuity process.
Most business owners do not usually consider that they may be victims of a natural disaster until an unforeseen crisis happens, which ends up costing their company a lot of money in operational and economic losses. These events can be unpredictable, and as a business owner, you cannot risk not having a disaster preparedness plan in place.
Business disasters can either be technological, natural or human-made. Examples of natural disasters include floods, tornadoes, hurricanes, landslides, earthquakes and tsunamis. In contrast, human-made and technological disasters involve things like hazardous material spills, power or infrastructural failure, chemical and biological weapon threats, nuclear power plant blasts or meltdowns, cyberattacks, acts of terrorism, explosions and civil unrest.
Potential disasters to plan for include:
Regardless of size or industry, when unforeseen events take place, causing daily operations to come to a halt, your company needs to recover quickly to ensure that you continue providing your services to customers and clients.
Downtime is perhaps among the biggest IT expenses that a business faces. Based on 2014-2015 disaster recovery statistics from Infrascale, one hour of downtime can cost small businesses as much as $8,000, mid-size companies $74,000, and large organizations $700,000.
For small and mid-sized businesses (SMBs), extended loss of productivity can lead to the reduction of cash flow through lost orders, late invoicing, missed delivery dates and increased labor costs due to extra hours resulting from downtime recovery efforts.
If you do not anticipate major disruptions to your business and address them appropriately, you risk incurring long-term negative consequences and implications as a result of the occurrence of unexpected disasters.
Having a DR plan in place can save your company from multiple risks, including:
As businesses become more reliant on high availability, their tolerance for downtime has decreased. Therefore, many have a DR in place to prevent adverse disaster effects from affecting their daily operations.
The two critical measurements in DR and downtime are:
Once you identify your RPO and RTO, your administrators can use the two measures to choose optimal disaster recovery strategies, procedures and technologies.
To recover operations during tighter RTO windows, your organization needs to position its secondary data optimally to make it easily and quickly accessible. One suitable method used to restore data quickly is recovery-in-place, because it moves all backup data files to a live state, which eliminates the need to move them across a network. It can protect against server and storage system failure.
Before using recovery-in-place, your organization needs to consider three things:
Also, since recovery-in-place can sometimes take up to 15 minutes, replication may be necessary if you want a quicker recovery time. Replication refers to the periodic electronic refreshing or copying of a database from computer server A to server B, which ensures that all users in the network always share the same information level.
A disaster recovery plan refers to a structured, documented approach with instructions put in place to respond to unplanned incidents. It’s a step-by-step plan that consists of the precautions put in place to minimize a disaster’s effects so that your organization can quickly resume its mission-critical functions or continue to operate as usual.
Typically, DRP involves an in-depth analysis of all business processes and continuity needs. What’s more, before generating a detailed plan, your organization should perform a risk analysis (RA) and a business impact analysis (BIA). It should also establish its RTO and RPO.
A recovery strategy should begin at the business level, which allows you to determine the most critical applications to run your organization. Recovery strategies define your organization’s plans for responding to incidents, while DRPs describe in detail how you should respond.
When determining a recovery strategy, you should consider issues such as:
Management must approve all recovery strategies, which should align with organizational objectives and goals. Once the recovery strategies are developed and approved, you can then translate them into DRPs.
The DRP process involves a lot more than simply writing the document. A business impact analysis (BIA) and risk analysis (RA) help determine areas to focus resources in the DRP process.
The BIA is useful in identifying the impacts of disruptive events, which makes it the starting point for risk identification within the DR context. It also helps generate the RTO and RPO.
The risk analysis identifies vulnerabilities and threats that could disrupt the normal operations of processes and systems highlighted in the BIA. The RA also assesses the likelihood of the occurrence of a disruptive event and helps outline its potential severity.
A DR plan checklist has the following steps:
An organization can start its DRP with a summary of all the vital action steps required and a list of essential contacts, which ensures that crucial information is easily and quickly accessible.
The plan should also define the roles and responsibilities of team members while also outlining the criteria to launch the action plan. It must then specify, in detail, the response and recovery activities. The other essential elements of a DRP template include:
A DRP can range in scope (i.e., from basic to comprehensive). Some can be upward of 100 pages.
DR budgets can vary significantly and fluctuate over time. Therefore, your organization can take advantage of any free resources available such as online DR plan templates from the Federal Emergency Management Agency. There is also a lot of free information and how-to articles online.
A DRP checklist of goals includes:
The plan should, at the very least, minimize any adverse effects on daily business operations. Your employees should also know the necessary emergency steps to follow in the event of unforeseen incidents.
Distance, though important, is often overlooked during the DRP process. A DR site located close to the primary data centre is ideal in terms of convenience, cost, testing and bandwidth. However, since outages differ in scope, a severe regional event may destroy both the primary data centre and its DR site when the two are located close together.
You can tailor a DRP for a given environment.
Testing substantiates all DRPs. It identifies deficiencies in the plan and provides opportunities to fix any problems before a disaster occurs. Testing can also offer proof of the plan’s effectiveness and hits RPOs.
IT technologies and systems are continually changing. Therefore, testing ensures that your DRP is up to date.
Some reasons for not testing DRPs include budget restrictions, lack of management approval, or resource constraints. DR testing also takes time, planning and resources. It can also be an incident risk if it involves the use of live data. However, testing is an essential part of DR planning that you should never ignore.
DR testing ranges from simple to complex:
Your organization should schedule testing in its DR policy; however, be wary of its intrusiveness. This is because testing too frequently is counter-productive and draining on your personnel. On the other hand, testing less regularly is also risky. Additionally, always test your DR plan after making any significant system changes.
To get the most out of testing:
Disaster recovery-as-a-service is a cloud-based DR method that has gained popularity over the years. This is because DRaaS lowers cost, it is easier to deploy, and allows regular testing.
Cloud testing solutions save your company money because they run on shared infrastructure. They are also quite flexible, allowing you to sign up for only the services you need, and you can complete your DR tests by only spinning up temporary instances.
DRaaS expectations and requirements are documented and contained in a service-level agreement (SLA). The third-party vendor then provides failover to their cloud computing environment, either on a pay-per-use basis or through a contract.
However, cloud-based DR may not be available after large-scale disasters since the DR site may not have enough room to run every user’s applications. Also, since cloud DR increases bandwidth needs, the addition of complex systems could degrade the entire network’s performance.
Perhaps the biggest disadvantage of the cloud DR is that you have little control over the process; thus, you must trust your service provider to implement the DRP in the event of an incident while meeting the defined recovery point and recovery time objectives.
Costs vary widely among vendors and can add up quickly if the vendor charges based on storage consumption or network bandwidth. Therefore, before selecting a provider, you need to conduct a thorough internal assessment to determine your DR needs.
Some questions to ask potential providers include:
A DR site allows you to recover and restore your technology infrastructure and operations when your primary data center is unavailable. These sites can be internal or external.
As an organization, you are responsible for setting up and maintaining an internal DR site. These sites are necessary for companies with aggressive RTOs and large information requirements. Some considerations to make when building your internal recovery site are hardware configuration, power maintenance, support equipment, layout design, heating and cooling, location and staff.
Though much more expensive compared to an external site, an internal DR site allows you to control all aspects of the DR process.
External sites are owned and operated by third-party vendors. They can either be:
During the 1980s, two entities, the SHARE Technical Steering Committee and International Business Machines (IBM) came up with a tier system for describing DR Service levels. The system showed off-site recoverability with tier 0 representing the least amount and tier 6 the most.
A seventh tier was later added to include DR automation. Today, it represents the highest availability level in DR scenarios. Generally, as the ability to recover improves with each tier, so does the cost.
Preparation for a disaster is not easy. It requires a comprehensive approach that takes everything into account and encompasses software, hardware, networking equipment, connectivity, power, and testing that ensures disaster recovery is achievable within RPO and RTO targets. Although implementing a thorough and actionable DR plan is no easy task, its potential benefits are significant.
Everyone in your company must be aware of any disaster recovery plan put in place, and during implementation, effective communication is essential. It is imperative that you not only develop a DR plan but also test it, train your personnel, document everything correctly, and Boost it regularly. Finally, be careful when hiring the services of any third-party vendor.
A few weeks ago I needed a power strip in my home office. The outlet in question is located behind a filing cabinet so it would need a low profile plug. I jumped on Amazon to buy a surge suppressor strip. That’s when I noticed strips with rotating plugs. I’ve always had some apprehensions about plugs like that, though I could never quite put my finger on why. Looking at the reviews on this particular plug, I found some scary issues. Photos of melted plugs, melted outlets, and cries of “fire hazard”. So I did what any crazy hacker would do – bought two power strips. One with a fixed right angle plug to use in my office, and one with a rotating plug to tear down.
Surge suppressors, power strips, outlet strips, they have many names. Underwriter’s Laboratories (UL) calls them “Relocatable power taps”. They all have several outlets, most have a circuit breaker of some sort inside, and some have circuits for surge suppression. These are some of the most common devices to find in the modern home. Many of our houses were designed and built before surround sound, cable boxes, computers, modems, cell phone chargers, tablet chargers, and all our other modern conveniences. There weren’t as many electrical loads, so the houses didn’t have many outlets. Power strips solve this problem.
After a couple of days, I had my strips in hand. I expected the plug to rotate once – maybe 270 degrees. That would indicate there were wires connecting the rotating head to rest of the plug. Not so – this plug would spin round and round all day long.
The plug rotates 360 degrees, yet still allows the hot, neutral, and ground wires to stay connected. It does this with the help of slip rings. Slip rings are devices that transmit one or more electrical signals across a rotating joint. Large slip rings can carry 100 or more separate circuits. Most car alternators use slip rings to supply DC excitation current to the rotor. Mechanically they are close cousins to commutators, used to transmit power to DC motors. The difference is that a single slip ring is a single connection, where a commutator is a switching device — in a motor it commutates current to one of several coils. Packaged slip rings used to be expensive, hard-to-find items. Thanks to globalization, you can pick them up at Amazon. A twelve-circuit slip ring will run you $9.99 shipped to your door.
The thing with slip rings is that they are mechanical devices. They wear, they can shatter, and the connections made across them can become intermittent. If you’re powering a circuit through a slip ring, it’s a good idea to put your power supply circuit after the ring, and include enough capacitance to soak up any intermittent connections. I’ve seen older FPGA chips latchup and heat up enough to desolder themselves off a PCB due to power transients caused by a bad slip ring.
I knew I would be tearing down this connector, but Belkin gave me plenty of information before I got out my screwdriver. Printed on the plug itself was PATENTED USA 5,775,921. The inventor of this particular rotating plug design is Jonie Chou, and Belkin has licensed the patent. Belkin also has their own patents on similar devices, most invented by John Wadsworth. In fact, there are 17 references to Jonie Chou’s patent from Belkin assigned patents. It’s safe to say that Belkin is heavily invested in rotating plugs and outlets.
I kept the ‘921 patent close by as I tore down the rotating plug itself. The 4 screws were easy to remove. The plug didn’t come apart though. It was glued or ultrasonically welded. I had to pry it apart using a utility knife blade as a wedge. The construction of the plug closely follows Figure 1 in the patent. Springs hold the two rings in place: number 5 for neutral and 6 for ground. Hot is a shaft on the plug end which rotates in a sleeve on the cord end. The neutral side has a tiny contact patch on the slip ring – I measured it at 2.24 mm x 1.24 mm. The rings themselves are 0.7 mm thick. Comparing the construction to the failure photographs from the Amazon reviews paints a pretty clear picture. The neutral slip ring forms a resistive connection. This creates heat, softening plastic, and eventually causes arcing as the connections fail. The ground conductor should back up the neutral, but only if the connection completely fails. At that point, the plastic is already softened. I’d be curious to see how many people have problems using these devices with Ground Fault Circuit Interrupter (GFCI) outlets.
How does this happen? Let’s run the numbers with a desk lamp. To keep the things simple, we’ll use a 60 W incandescent light bulb. Ohms law tells us that 60 W is 0.5 A at 120 V. The bulb’s resistance is around 240 Ω. Normally the voltage drop over the wiring is relatively small. But say the resistance at the slip ring is 10 Ω. Now we have a total resistance of 250 Ω. Current drops to 0.48 A, and power to 57.6 W.
4.8 V and 2.3 W of power are now being dropped across that 10-Ω load. That doesn’t sound like much, but where does the heat go? The slip rings heat up. Some of the heat is carried away by the wires, but not all of it. The rest is dumped into the plastic, which starts to soften. The softening plastic allows everything to start moving. The slip rings and contacts slide apart. The plug blades end up at odd angles. Finally, the connection starts to break. A few microns of space opens up between the contacts, which is easy for 120 V to arc over. Arcing starts, dumping more heat into the system, and providing an ignition source. From here one of two things happen – the soft charred plastic moves enough to break the connection, or things catch fire.
The strange thing here is that Belkin knows about the problem. Back in 2009, Belkin recalled 68,700 surge protectors with rotating plugs. The problematic devices had all been manufactured in 2003. Whatever the manufacturing issues were, they were fixed to Belkin’s satisfaction, and the company is still making rotating plugs. My device, in particular, had a manufacturing date of June 2017.
The problems persist though. Pictures of melted plugs are all over the Amazon review pages – and not just the recall devices. These are new devices, purchased this year. The consumer product safety board has five reports of failed Belkin surge suppressors on record.
In September a Houston news show investigated issues with a failed surge suppressor, but didn’t get very far with Belkin — however, this case seems to be one of a failed surge suppressor PCB, not the plug itself.
Through all of this, it is important to note that the Belkin device and its plug are Underwriters Laboratories (UL) listed, so the devices have been tested and found to be safe by at least one lab. While Hackaday doesn’t have failure statistics for this particular model, it might be worth UL taking a second look at the design.
This sort of thing can happen with any connection. The difference between the Belkin plug and traditional plugs is that the rotating slip rings provide many more points of failure. AC mains plugs take a lot of abuse. They get yanked out by their cords. They’re banged by furniture. They have to handle corrosion, dust, and gunk building up on their blades. They take heating and cooling cycles as high current loads switch on and off. All this happens over years, even decades in some cases. So why add multiple points of failure to a system which is going to be abused?
Belkin has already been through a recall due to this rotating design. Judging by the photos on Amazon, they might do well to consider revamping the rotating plug completely – before someone loses their shop, their home, or worse. That said, they’re not the only company producing rotating plugs. Searching Amazon for “360 plug” reveals several other licensees of the 5,775,921 patent. Companies such as 360 Electrical are building outlet strips where every outlet rotates. Are any of them safe?
As for me, I installed the fixed plug Belkin surge suppressor in my office. As for the second strip, the rotating plug will soon be cut off and replaced with a plug from the hardware store and the surge suppressor will live out its days powering the computer in my shop.