Do the energy giants need the government energy loan scheme?

Yesterday, the Chancellor of the Exchequer, Rishi Sunak, announced a package of help for those most impacted by the Ofgem energy price rise. On April 1, around 22 million customers will be hit by an energy price increase of 54%.
Posted on 4 February 2022

Yesterday, the Chancellor of the Exchequer, Rishi Sunak, announced a package of help for those most impacted by the Ofgem energy price rise.

On April 1, around 22 million customers will be hit by an energy price increase of 54%.

Those on default tariffs paying by direct debit will have to pay £693 more each year, while prepayment customers face an increase of £708.

The Chancellor said all domestic energy customers will get an up-front discount on their energy bills worth £200. However, that money’s not going to households, but to the energy giants themselves.

Energy providers will apply the discount to people’s bills from October.

Households will repay the discount in £40 instalments over five years.

The loans given to energy providers will be worth £9.1 billion in total.

Now, while the £200 discount doesn’t match the increases, it’s better than nothing – and we’ve said previously that this crisis isn’t the government’s fault.

But here’s the issue, described perfectly by

“In the last four months of 2021, UK utilities faced ruin due to consistently high wholesale gas and power prices. These made their business unprofitable, while energy price caps prevented them from passing costs on.

The chain of events began with the pandemic, and the fall in wholesale energy prices that came with it. As Covid-19 hit the UK, the country’s gas and electricity use fell sharply. This mirrored low demand in other countries, and when met with overproduction from oil and gas companies, prices plummeted.”

The smaller energy firms took the opportunity to lower their prices and bring in new customers.

The energy giants though? They barely changed prices for their customers and made huge profits as a result.

It’s an inconvenient truth, and one that E.ON chief executive Michael Lewis struggled with on BBC Breakfast today:

“Why don’t you give up some of your profits and help your customers?” asks @TVNaga01

UK Chief Executive of E.ON, Michael Lewis tells #BBCBreakfast they have made losses but the industry needs healthy companies to invest in the future.


— BBC Breakfast (@BBCBreakfast) February 4, 2022

In summary:

  1. Wholesale gas and electric prices fell.
  2. Small companies reduced their tariffs for customers.
  3. Large companies kept their tariffs high and made huge profits from their customers.
  4. Wholesale prices rose. Small companies couldn’t cope and went bust while the big boys had massive profits to fall back on.
  5. Prices have now gone up for customers, to the tune of at least £693 per year.
  6. The energy giants are being given £9.1 billion by the Government to help lower bills.
  7. But customers only see £200 of that and have to pay it back.
  8. Fuel poverty only gets worse.

And this isn’t the end of the price rises. Ofgem now says the market is so volatile it may have to update the energy price cap every three months.

Something has to change, and companies like Alpha 311 can help lead that change.