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PM Lays out New Price Caps and Big Picture Strategy

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An announcement on a revised domestic price cap had been widely expected before the new Prime Minister’s address to the House of Commons today, with businesses hoping for similar support to be extended to them. Both transpired, although questions remain regarding the level of support available for businesses and which sectors will receive additional support to help them deal with energy costs that have already spiralled out of control for many. Liz Truss also laid out ambitious future plans to ensure the UK becomes a net exporter of energy by 2040, with a raft of new measures outlined, although with little by way of detail.  

The Energy Price Guarantee 

A new ‘energy price guarantee’ will replace the domestic price cap, freezing home energy bills at a maximum of £2,500 a year from October. A similar measure will be applied to businesses, capping the total amount that can be charged per kWh of energy purchased for six months, also set to come into force from October. In addition, green levies that make up a significant portion of the non-commodity cost aspect of an energy bill will be suspended temporarily. The news comes hours after a report that indicated as many as 75,000 large businesses in the UK could go bust due to energy costs. 

Many sectors are already struggling with their current energy costs, and while the new mechanic will limit some of the anticipated increase, they are still facing a likely rise in their energy bills heading into the winter months. Even with a cap on rises, many sectors are in dire need of additional, targeted support. While this was addressed, it was only in the context of a review led by new Business and Energy Secretary Jacob Rees Mogg, while will spend the next three months identifying sectors that need further support.  

While hospitality and pubs were both mentioned as potential recipients, energy-intensive sectors facing major staff redundancies or closures due to their energy costs were not. Despite increasingly urgent calls for clear, meaningful support from large trade bodies such as UK Steel, the picture for heavy industry and manufacturing remains worryingly unclear. 

Future Energy Security 

The latter half of the prime minister’s address focused on overhauling the UK’s energy mix and strategy to reduce our reliance in imported gas. Western Europe looks set to face a severe gas shortage this coming winter, with Russia now having confirmed that flows through the Nord Stream 1 pipeline will not resume unless Europe lifts sanctions imposed on Moscow. Any steps that are to be taken to bolster the UK’s energy security need to come ahead of this winter. However, the window of opportunity is rapidly closing, and it is unclear which of the mooted solutions, if any, will plug the generation gap in the short term. 

Fossil fuels look to be one benefactor of the new strategy, a point not lost on environmental campaigners also frustrated that Truss, a former Shell employee, also ruled out a windfall tax on energy companies to fund measures. A ban on fracking is set to be lifted, while a new licensing round for North Sea oil and gas extraction could see upwards of 100 new projects greenlit. While the UK’s reliance on imported gas has played a role in the current energy crisis, simply ramping up our own generation is unlikely to provide a timely solution.  

At the same time, it appears at crossed purposes to the UK’s net zero ambitions. An announcement that a review into the UK’s net zero strategy, described as pro-business and pro-growth, is forthcoming may provide some answers, but what those could be are difficult to guess. Clean technologies including hydrogen, tidal energy and modular nuclear reactors were all mentioned, but all three technologies remain largely in the proof-of-concept phase, and are some ways from a meaningful, large-scale rollout. 

Again, a major announcement on energy policy offers some clarity and relief, particularly for domestic customers, but many businesses will see today’s news as a disappointing lack of short-term clarity in favour of big picture energy strategy that will be decades in the making. More announcements are expected in the coming weeks, including Chancellor Kwasi Kwarteng setting out fiscal costs later in September. You can keep up with these developments here on the Powerstar blog or via Twitter or Linkedin. 

Powerstar’s new energy savings calculator provides a clearer picture of how your business could save money by installing voltage optimisation technology. Find out how much you could save here.

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