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15 Mar 2023
UK Electric Utilities: Over to you, Mr Hunt
Centrica plc (CNA:LON), 128 | Drax Group plc (DRX:LON), 512 | Good Energy Group PLC (GOOD:LON), 255 | National Grid plc (NG:LON), 1,054 | SSE plc (SSE:LON), 1,650
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UK Electric Utilities: Over to you, Mr Hunt
Centrica plc (CNA:LON), 128 | Drax Group plc (DRX:LON), 512 | Good Energy Group PLC (GOOD:LON), 255 | National Grid plc (NG:LON), 1,054 | SSE plc (SSE:LON), 1,650
- Published:
15 Mar 2023 -
Author:
Martin Young -
Pages:
9
HM Treasury has announced that the Energy Price Guarantee (EPG) will be kept at £2,500 for an additional three months (April to June).
The suggestion in the press release (HERE) is that this will save a typical household £160. Versus the £3,280 price cap, we agree, but the more relevant comparator is the £3,000 level to which the EPG was intended to rise. The incremental saving for a typical household is c.£100.
We estimate the cost to HM Treasury of extending the guarantee at c.£2.6bn.
Updated to reflect closing commodity prices of last night, our July (Q3) cap estimate is now £2,056 (vs. £2,094), and our October (Q4) estimate is £2,071 (vs. £2,124).
These estimates, marked to market, will be volatile, but are again the lowest estimates we have published for Q3 and Q4.
For electricity, our Q3 estimate sees a standing charge of 48.34p/day and a unit charge of 29.89p/kWh, with our Q4 estimate seeing a standing charge of 48.34p/day, and a unit charge of 30.44p/kWh.
For gas, our Q3 estimate sees a standing charge of 26.57p/day and a unit charge of 7.41p/kWh, with our Q4 estimate seeing a standing charge of 26.57p/day, and a unit charge of 7.35p/kWh.
We welcome the extension of the EPG, but our tariff cap estimates for Q3 and Q4 are still considerably higher than historic levels, and challenging for many. We reiterate our view that social tariffs are needed. We urge government/industry/Ofgem to work together at pace in this respect.
A more immediate and workable measure would be to eliminate the prepayment meter uplift in tariff cap. The uplift is currently £45/dual-fuel and, with c.4m prepayment customers, the cost to government of absorbing the differential would be c.£180m.We expect this to be confirmed in the budget.
Policy costs fall largely on electricity which, given the push to electrify, we view as perverse. Government committed to publishing proposals on “rebalancing” the costs placed on energy bills away from electricity in 2022 to incentivise electrification across the economy and accelerate consumers’ and industry’s shift away from volatile global commodity markets. We still await these proposals, but at TDCV, cap policy costs ex VAT are £131 (electricity) and £34 (gas). We estimate the cost to govt to remove these from the bill at c.£4.6bn.
There is a growing narrative from a variety of stakeholders that the UK investment landscape is less appealing given government intervention (EGL, windfall tax), lack of pace on investment frameworks, uncertainty from structural change, and incentives elsewhere (e.g. US Inflation Reduction Act). We urge to Chancellor to bring forward measures to incentivise green investment,