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.
Writing in the Financial Times, SSE chief executive Alistair Phillips-Davies proposed a voluntary scheme through which low-carbon electricity companies that own existing assets, such as wind farms and nuclear plants, could agree to fixed prices well below current rates for wholesale power for production they have not committed to sell 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 help take the heat off power companies, which fear a windfall tax if they generate huge profits while households face the biggest squeeze on their income in a generation, fuelled by spiralling energy costs. Oil and gas companies operating in UK waters have already been hit with a new 25 per cent windfall levy.
Allies of Nadhim Zahawi, the chancellor, who held an urgent meeting with energy companies including SSE last week, have said he is keeping alive the prospect of a windfall tax if generators are seen to be returning excess 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 renewable energy generation, such as wind farms, as well as electricity networks and gas-fired power plants in Britain. It no longer sells electricity and gas directly to British customers after it sold its retail business to Ovo in 2020.
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.
The academics claimed most existing large scale renewable energy projects still benefit from a legacy support scheme that pays generators a subsidy on top of prevailing wholesale power prices.
Phillips-Davies insisted the government would still have to play the biggest part in helping families this winter, as he backed a billion-pound loan scheme proposal to help suppress domestic energy prices.
The scheme, first suggest by ScottishPower in April, has been gaining support as concern about energy bills has risen. 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.