Wholesale gas prices have quadrupled in the past year according to energy regulator Ofgem. Many households in Wales have been struggling to keep their homes warm, and with continuing uncertainty in the global energy market prices will rise again before winter. Since 1 April, some of this cost has been passed on to consumers with a 54% increase so far in the energy price cap for household fuel bills. On 4 August, Ofgem announced the price cap would be reviewed every three months, rather than the current six, meaning prices are likely to increase again in January, in addition to the October increase.
There is concern that energy price rises will lead to a considerable rise in fuel poverty in Wales. The Welsh Government has predicted that up to 45% of Welsh households (614,000 households) could be in fuel poverty following the energy price cap rise in April, compared to 14% of households (196,000 households) in October 2021.
What is the domestic energy price cap?
As the UKs energy regulator, Ofgem ensures that energy companies charge a fair price based on the true cost of supplying electricity and gas. It does this by placing a price cap on energy suppliers default tariff. It is currently reviewed twice a year with any changes implemented in April and October each year. The cap also helps ensure that enough energy suppliers remain viable to keep up with the demand. Reports indicate that in the 12 months to January 2022 at least 30 energy suppliers went out of business.
What is fuel poverty?
According to the Welsh Government, a household is living in fuel poverty if they are unable to keep their home warm at a reasonable cost. In Wales, this is measured as any household that would have to spend more than 10% of their income on maintaining a satisfactory heating regime. If the household has to spend 20% of its income then it is considered to be in severe fuel poverty.
Last year the Welsh Government published a new fuel poverty plan aiming that by 2035:
- no households are estimated to be living in severe or persistent fuel poverty as far as reasonably practicable;
- not more than 5% of households are estimated to be living in fuel poverty at any one time as far as reasonably practicable; and
- the number of all households “at risk” of falling into fuel poverty will be more than halved based on the 2018 estimate.
What has the Welsh Government done?
One approach to reducing the impact of rising energy costs is to make homes more energy efficient. Since 2011, the Warm Homes Programme has been a key Welsh Government mechanism for this, supporting privately owned or rented households in, or at risk of, fuel poverty. Its Nest advice line can also support household affordability by advising on energy saving, tariff switching, money management or benefit entitlements, for example.
By the end of March 2021, investment of almost £400m had been delivered through the Warm Homes Programme to improve the energy efficiency of more than 67,000 homes in Wales. Its area-based Arbed scheme ran until November 2021, and the needs-based Nest scheme continues to 2023. A replacement programme is expected to follow this pending the outcome of a public consultation.
The Welsh Government also recently announced a £330m package of measures to tackle the rising cost of living including a one-off £150 cost-of-living payment to eligible households in council tax bands A to D, or who receive support through the Council Tax Reduction Scheme. A Winter Fuel Support Scheme which offered payments of £200 to eligible households will be made available again next winter.
What has the UK Government done?
UK Government measures include the Warm Homes Discount Scheme and the Energy Company Obligation programme delivered via energy suppliers. In May it announced further measures including a new £15 billion support package which it says brings the total UK wide cost of living support to £37 billion this year:
- Support of ‘at least’ £1,200 this year to ‘almost all’ eight million most vulnerable households across the UK, including a new one-off £650 cost of living payment;
- Additional payments of £300 to pensioners and £150 to people in receipt of disability benefits; and
- Universal support increasing to £400, as the October discount on energy bills is doubled and the requirement to repay it over five years is scrapped
A new temporary Energy Profits Levy on oil and gas firms is said to raise around £5 billion over the next year to help with the cost of living, with a new investment allowance to encourage firms to invest in oil and gas extraction in the UK
What did the Committee find?
The Equality and Social Justice Committee published a report on its inquiry into Fuel Poverty and the Welsh Government’s Warm Homes Programme on 18th May. It made 23 recommendations to which the Welsh Government responded on 7 July. It accepted 21 of the 23 recommendations, with the other two “accepted in principle”.
The report concluded that the size, scale and purpose of the Warm Homes Programme failed to match the level of need in our communities. It says that achievement of its core objectives to tackle fuel poverty were undermined by aspects of the Programme’s design and delivery. The report suggests that these will need to be addressed in order to deliver a transition to net zero carbon that is fair, effective, and just. In particular, it recommends targeting households “left behind” in the private rented sector, and the “harder to treat” older, off-grid properties in rural areas.
During the inquiry, the Committee heard evidence pointing to a conflict in shifting homes to low carbon technology without placing a financial burden on homes that can least afford it. Under the current Welsh Government schemes, gas boiler replacement became the default intervention as the most cost-effective way of providing cheaper household bills in the short term. On the other hand, very little investment went into future-proofing homes such as renewable energy, insulation and draught proofing. But in light of rising energy costs, stakeholders such as the New Economics Foundation argued that the time for cheap gas-powered solutions was coming to an end.
The Committee also engaged with consumers, including those who had benefitted from the Nest and Arbed schemes. Participants were very aware of their energy costs, and fearful that further energy price increases could leave them having to choose between heating their homes and putting food on the table.
Further information on a successor to the Warm Homes Programme is expected later this year as the Minister for Climate Change set out in a recent letter to the Senedd Climate Change, Environment and Infrastructure Committee.
The Senedd will debate the ESJ Committee’s Fuel Poverty and the Warm Homes Programme report on 14 September 2022. You can follow the debate on Senedd.tv.
Article by Rhiannon Hardiman, Senedd Research, Welsh Parliament