Energy Prices Act 2022

Policy background

4. The global energy crisis, which has been compounded by the Russian invasion of Ukraine on 24 February 2022, has seen energy bills increase significantly. Without intervention, from 1 October 2022, the annual energy bill for a typical household was due to increase from £1971 to £3549, with further increases expected in January 2023 to an estimated £4200. 1 For many consumers this is unaffordable and the implications for the economy are significant.
5. In response to the energy crisis, the Government announced the Energy Bills Support Scheme 2 which will provide £400 energy bills discount for all households in Great Britain delivered through domestic electricity suppliers. The Act will enable the Energy Bills Support Scheme to be extended to Northern Ireland.
6. The Northern Ireland Energy Bills Support Scheme (NI EBSS) will ensure equivalent support is provided for households in Northern Ireland. Given the devolved context, currently the UK Government does not have a robust legislative basis to deliver NI EBSS. NI EBSS will primarily be delivered through a Direction by the Secretary of State to energy licence holders, which will detail how the NI EBSS scheme will work, and energy licence conditions will be modified to embed and require compliance with this Direction. The Act will enable Government to underpin NI EBSS on a more secure statutory footing, provide the UK Government with greater assurance and use the existing Northern Irish energy regulatory framework, all helping to deliver support to households in Northern Ireland this winter.
7. In addition to this, in September 2022, the Government announced a new Energy Price Guarantee (EPG) . 3 The EPG scheme will use Government funding to allow energy suppliers to reduce domestic consumer bills, by reducing the amount consumers are charged for each unit of gas and electricity used in their homes. The EPG will apply from 1 October 2022 keeping the annual energy bill for the typical household to around £2,500. 4 The new guarantee will apply to households in Great Britain, and a similar scheme will provide the same level of support to households in Northern Ireland from 1 November 2022.
8. A review of the scheme will be undertaken to consider how to support households and businesses with energy bills after April 2023. The objective of the review is to design a new approach that will be targeted to the most vulnerable households and those least able to pay, with greater incentives to improve energy efficiency.
9. In the case of NI EBSS and the EPG, the UK Government is legislating for Northern Ireland. Given energy policy is transferred in Northern Ireland, under normal circumstances, the Northern Ireland Executive and the Northern Ireland Assembly would implement equivalent schemes locally, if desired, using money made available via the Northern Ireland Consolidated Fund, relying on using Barnett consequentials. 5 In the absence of an Executive, caretaker Northern Ireland Ministers are unable to implement support on this scale locally, and Northern Ireland political leaders and the Northern Ireland Civil Service have requested that the UK Government act in their stead. The Act does comply with the provisions of the Northern Ireland Protocol relating to a single electricity market for Ireland/Northern Ireland.
10. To support businesses, charities and public sector organisations such as schools and hospitals, the Government announced the Energy Bill Relief Scheme for Great Britain (EBRS GB) 6 and the intention to bring forward the Energy Bill Relief Scheme for Northern Ireland (EBRS NI) in September 2022. The scheme will provide a price reduction for all eligible non-domestic customers whose current gas and electricity prices have been significantly inflated in light of global energy prices. The scheme can run for a maximum period of two years after the first date the regulations provide for the reduction of electricity or supply charges. The Government intends to publish a review of the scheme in 3 months, which will consider how best to offer further support to customers who are the most vulnerable to energy price increases.
11. The Government recognises that consumers not connected to either the gas or electricity grid will not benefit from the EPG or the EBRS. In response, the Government will also introduce Alternative Fuel Payment schemes for both domestic and non-domestic consumers for both Great Britain and Northern Ireland. The domestic Alternative Fuel Payment will act by providing a one-off, lump sum £100 support payment through a household’s electricity bill. Eligible households who do not receive support through their electricity bill will be able to access the payment via an AFP Discretionary Fund. Heat network consumers will also receive a £100 support payment. The Non-Domestic Alternative Fuel Payment will likely take the form of a flat rate payment. Powers will enable the Government to deliver support via electricity bills in both Great Britain and Northern Ireland, under a similar delivery model to the Energy Bills Support Scheme, or to provide support through an alternative designated body (e.g. local authorities or other statutory body) if this proves practicable.
12. The Act will enable financial assistance to be given to energy suppliers to meet obligations under the Government’s energy support schemes such as those detailed above.
13. The Act will also enable the Government to sever the link between abnormally high gas prices and the price of electricity from low carbon generators through the imposition of a temporary Cost-Plus Revenue Limit, ensuring consumers pay a lower amount for their low-carbon electricity, and allowing generators to cover their costs and receive an appropriate revenue that reflects their investment commitment and risk. At present the electricity price in the UK is set by the price charged by the most expensive, or marginal, source of energy for generation. In most cases this most expensive source of energy for generation is gas, and currently gas prices are significantly inflated in the UK in light of global energy prices. Low carbon generators operating in the market may have lower operating costs but still benefit from the high price in the wholesale market. By regulating for a temporary requirement for electricity generators to make payments and to enable existing electricity generators to be offered a Contract for Difference, the Act will ensure that consumers pay a lower price for their low carbon electricity and that low carbon electricity firms do not unduly gain from the energy crisis.
14. The Act will include powers to oblige intermediaries (e.g. private landlords) to pass through the benefit they receive from energy price support across the UK to their end users. This will provide support to those end users who are exposed to high energy costs but are not customers of licensed suppliers.
15. The passthrough requirements on intermediaries will apply to heat networks. 7 Given heat networks buy energy through commercial tariffs, consumers will not receive a reduction in their heating costs through the domestic EPG. Heat networks will receive reductions in wholesale energy costs through the Energy Bill Relief Scheme for non-domestic consumers and will be eligible for the £100 heat network payment to households.
16. The passthrough requirements in this Act will ensure that these cost reductions are passed onto heat network consumers in the form of lower heat bills. The measures will also strengthen the existing data held in relation to heat networks and their consumers so that Government can provide a one-off £100 payment to households.