Electric utilities can dampen rising energy costs for UK households by agreeing to sell some of their production at fixed prices “much lower” than current wholesale rates, according to UK energy group SSE.
The FTSE 100 company has admitted that electric utilities could play a role in smoothing out rising household energy costs, though it has also joined calls for the government to “artificially” lower domestic energy prices by cutting payments to suppliers. so that they can avoid passing on huge increases in the UK price cap.
In the Financial Times, SSE chief executive Alistair Phillips-Davies proposed a voluntary scheme that would allow low-carbon electricity companies that own existing assets, such as wind farms and nuclear power plants, to agree to set prices well below current tariffs for wholesale power for production they commit. not obliged to sell in advance.
Such fixed-price contracts could run for 15 years, which would help bridge “the gap” until other long-term plans to lower the price of electricity in Britain are enacted, Phillips-Davies said. For example, the government has set targets for low-cost low-carbon technologies, such as offshore wind, by 2030, as it seeks to reduce Britain’s dependence on expensive imported gas.
The radical proposal would help relieve energy companies who fear a windfall if they generate huge profits, while households face the greatest pressure on their income in a generation, fueled by rising energy costs. Oil and gas companies operating in British waters have already been hit by a new 25 per cent windfall tax.
Allies of Chancellor Nadhim Zahawi, who held an urgent meeting with energy companies including SSE last week, have said he keeps alive the prospect of a windfall if it is found that producers are paying back excess profits to shareholders.
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Phillips-Davies’ intervention comes before Ofgem announces on August 26 the new level of the energy price ceiling, which dictates the bills for the vast majority of households. Current forecasts say the energy regulator will announce an increase to over £3,600 a year for an average household from 1 October, down from £1,971 currently.
Phillips-Davies said renewable and nuclear generators would repay the difference between the agreed fixed price and current wholesale rates in a pot “which could then help pay off any debt incurred by [household] Prices”.
SSE owns renewable energy generation, such as wind farms, as well as electricity grids and gas-fired power stations in Britain. After that, it will no longer sell electricity and gas directly to UK customers sold its retail to Ovo in 2020.
The proposal sounds like a scheme suggested earlier this year by academics at the UK Energy Research Centre, who estimate that more than £300 a year could be knocked off household energy bills.
The academics claimed that most existing large-scale renewable energy projects still benefit from an old support scheme that pays generators a subsidy on top of current wholesale electricity prices.
Phillips-Davies insisted the government should still play the biggest role in helping families this winter, as he backed a billion-pound loan proposal to help push domestic energy prices down.
The scheme, first proposed by ScottishPower in April, is gaining support as concerns over energy bills have mounted. Phillips-Davies added that a loan arrangement should be seen as a “mortgage” rather than a “handout”.
“Like Covid emergency relief, it would depend on relatively cheap government loans, but with a plan to pay off this debt as we complete our energy transition and prices fall,” he added.