Electricity companies can dampen spiralling energy costs for British households by agreeing to sell some of their production at fixed prices “far lower” than current wholesale rates, the UK energy group SSE said.
The FTSE 100 company has admitted electricity companies could play a part in smoothing out surging energy costs for families, although it also joined calls for the government to “artificially” suppress domestic energy prices by providing payments to suppliers so they can avoid passing on huge increases in Britain’s price cap.
Alistair Phillips Davies, chief executive at SSE, proposed a voluntary program through which low carbon electricity companies, such as wind farms or nuclear plants, could agree on fixed prices that are well below current wholesale power rates. This would allow them to produce wholesale power at lower rates than they have committed to selling in advance.
Such fixed-price contracts could run for 15 years, which would help bridge “the gap” until other longer-term plans to reduce the price of electricity in Britain are established, Phillips-Davies said. For example, the government has set out targets for cheap 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 ease the pressure on power companies, who are afraid of a windfall income tax if they make huge profits, while households are experiencing the largest squeeze in their income in a generation due to spiralling fuel costs. A new 25% windfall tax has already been imposed on oil and gas companies operating in UK waters.
Allies of Nadhim Ziawi, the chancellor have met with SSE and other energy companies last week to discuss the possibility for a windfall tax if generators were seen to be returning excessive profits to shareholders.
Phillips-Davies’s intervention comes ahead of Ofgem announcing on August 26 the new level of the energy price cap, which dictates bills for the vast majority of households. Current forecasts suggest the energy regulator will announce a rise to more than £3,600 a year for a typical household from October 1 from £1,971 currently.
Phillips-Davies said renewable and nuclear generators would pay the difference between the agreed fixed price and current wholesale rates back into a pot “which could then help pay down any debt created by capping [household] prices”.
SSE owns both renewable energy generation, including wind farms, and also electricity networks and gas-fired power stations in Britain. After selling its retail business to Ovo in 2019, it no longer sells electricity and natural gas directly to British clients.
The proposal echoes a scheme suggested earlier this year by academics at the UK Energy Research Centre, who estimated that more than £300 could be knocked off household energy bills a year.
According to academics, most large-scale renewable energy projects are still supported by a legacy support program that pays generators a subsidy in addition to the wholesale power prices.
Phillips-Davies argued that the government would still need to play the largest role in helping families this winter. He backed a billion-pound loan program to lower domestic energy prices.
This scheme was first suggested by ScottishPower in April. It has gained support as concerns about rising energy bills have increased. Phillips-Davies added that a loan scheme should be viewed as a “mortgage” rather than a “handout”.
“As with Covid emergency support, it would rely on relatively cheap government borrowing, but with a plan to pay down this debt as we complete our energy transition and prices fall,” he added.
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