Why high energy prices are the new normal – despite price cap drop
From July the new Ofgem price cap will bring domestic bills close to £2,000 for the first time in more than a year.
That will be welcomed by consumers and the Treasury, but it signals a new normal of sustained high energy prices that would have been unthinkable prior to the Russian invasion of Ukraine.
First the good news. Ofgem’s price cap is based on forward projections of wholesale energy prices and the new level reflects a levelling off in markets that, in January, pushed the cap close to £4,000.
Since October consumers have been protected from the steepest rises by the government’s Energy Price Guarantee, which capped average bills at £2,500 for nine months.
That support was scheduled to end in June, in part because forecasts suggested wholesale prices would fall, but it will still have come as a relief to see them realised.
Thus far the Treasury has borrowed £94bn supporting businesses and households through the energy crisis.
The new cap means households will save around £450m, but the end of state support means they will now be subject to the whims of the markets and the wisdom of the regulator to set prices.
Here there is little reason to think prices will continue to fall back. Energy bosses expect wholesale prices to remain stable for the rest of the year and the markets agree, with forward curves broadly level.
Read more:
Significant easing of inflation as energy costs stabilise
Energy price cap set to remain more than £1,000 higher than pre-pandemic
That means, barring unforeseen shocks, that prices will remain at close to double the long-term average of around £1,000 that applied before the war.
Energy prices have been so volatile and punishing that it is easy to forget what that means.
Elevated bills have made fuel poverty mainstream and millions of households have seen budgets stretched as never before.
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Energy giants’ profits may have peaked
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Energy suppliers have struggled to adapt too with call centres overwhelmed by customers unable to pay and prep-payment meters, a last resort intended for the most extreme cases of non-payment, forcibly installed in close to 100,000 households.
Add the inflationary impact of energy prices on every other area of consumption, particularly food, and you have a cost of living crisis that will persist without fundamental reform of the market.
There are several options that might bring household bills down but none that avoid someone having to meet the real cost of energy.
Ofgem supports the introduction of a ‘social tariff’ that would offer a reduced rate to the least well-off households.
The regulator is already talking to the water industry and local authorities about identifying households that struggle with paying for basic utilities and ministers have made encouraging noises, but it would have to be underwritten by the taxpayer, or by an additional charge on other bill payers.
There are other technical changes that could remove some cost.
So-called “green levies” applied to electricity costs could be switched to gas, more accurately reflecting the environmental impact of generation, but the taxpayer would have to fill the gap.
Ultimately elevated energy prices are the price of removing Russian oil and gas from our energy mix, a hole we cannot yet fill from the growing renewables sector and cost of war that we may have to get used to.
The Daily Telegraph newspaper has inched closer to a sale after Lloyds Banking Group seized control of its parent firm over unpaid loans and placed it in the hands of receivers.
Sky News has previously reported how the bank was understood to have undertaken the drastic move and was in the process of appointing investment banks to handle an auction of the press pack.
It is understood to value the Telegraph, its sister Sunday paper and The Spectator magazine at £600m.
They are contained within the profitable Press Acquisitions division of B.UK Ltd, which is controlled by the Barclay family.
The division also includes the Telegraph Media Group.
Lloyds appointed AlixPartners to act as receiver over B.UK after years of talks about refinancing a family business loan dating back before the financial crisis of 2008 came to nothing.
AlixParters said of the current position: “Bank of Scotland [part of Lloyds] has made this appointment under its rights as a lender, to consider alternative strategies to repay a facility… that remains in default despite extensive discussions to resolve the situation.”
The statement added that the process ahead “may involve sales of the Telegraph and Spectator businesses”.
It concluded: “The receivership over the shares in B.UK is in no way related to the financial health or performance of the Telegraph or Spectator businesses and we do not anticipate any operational changes to the businesses or their employees.
“Neither the Telegraph Media Group nor the Spectator are entering administration.
“In the meantime, the day-to-day running of all operating subsidiaries held by B.UK Limited will continue as normal.”
The owners of The Sun and Daily Mail are tipped to want the Telegraph titles
The Barclays have maintained ownership of the newspapers since 2004.
The expected sale, while not guaranteed, would attract high levels of interest given its subscriber base and profitability.
Sky’s City editor Mark Kleinman expected a bidding frenzy for the titles.
“It’s not often that we get national newspapers of the calibre of the Telegraph titles coming onto the market,” he said.
“I would expect a pretty hot bidding war to take place over the next few months.”
Of the potential bidders, he said: “I think we will get some interest from Lord Rothermere, the owner of the Daily Mail.
“We’ll almost certainly hear speculation that Rupert Murdoch, the owner of course of The Times and The Sun, may want to throw his hat into the ring.”
Rupert Murdoch and other current UK paper owners may find regulatory hurdles to a successful Telegraph bid. Pic: AP
Given the papers’ political affiliations, he also expected some Conservative party donors to express interest in the auction.
The competition regulator would be expected to take a keen interest should it feel that the successful bidder already has enough of a share of the market.
Bank of Scotland said of its actions: “Due to debts being in default and with no sign they would be repaid, Bank of Scotland was regrettably left with no other choice but to appoint receivers over B.UK. Limited.
“The Receivers subsequently initiated changes to the directors of certain B.UK subsidiaries, with independent directors appointed to Ellerman Investments Ltd, Telegraph Media Group Limited and Spectator (1828) Limited.
“The decision to appoint receivers is an act of last resort and follows numerous discussions with B.UK’s parent company, Penultimate Investment Holdings Limited (PIHL).
“The aim of these discussions, which were held over a long period and undertaken in good faith, had been to find a consensual solution and repayment of PIHL’s borrowing to Bank of Scotland.
“Unfortunately, no agreement could be reached, which prompted the appointment of Receivers. While the Receivers are now in place, the Bank remains willing to continue discussions to find a suitable solution.”
A spokesperson for Barclays said: “We can confirm that discussions with Lloyds Banking Group remain ongoing.
“We hope to come to an agreement that will satisfy all parties. As AlixPartners made clear, this situation is in no way related to the financial health or performance of the Telegraph or Spectator businesses”.
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