Initial Advice to Scottish Government

The Scottish Fuel Poverty context

A number of factors have coalesced to create a unique challenge for those already in fuel poverty, and for those who will become fuel poor as energy prices continue to rise. Rises in average household energy costs over the last year are unprecedented, with the Price Cap rising from £1,277 in October 2021 to the current Energy Price Guarantee for October 2022,¹ of £2,500² to April 2023. This figure reflects the average cost paid per household on energy but is not a cap on total household energy expenditure. Many households, including vulnerable households, in Scotland will exceed this figure based on higher rates of usage.

Even with the Energy Price Guarantee in place, and the Energy Bills Support Scheme £400 discount,³ by April 2023 average energy prices will have significantly increased since October 2021 for the typical household. The current model for price setting (the Price Cap), and the market volatility which has undermined it, is ineffective as the need for governmental interventions demonstrates.

However, the cap does at least provide some price structuring for those on gas and electricity networks. Those off the gas grid (typically using: heating oil, bottled gas or solid fuels) are even more exposed to price volatility as these sources are not subject to the same price protection.⁴ People living in remote rural Scotland pay more to buy less energy. They are unlikely to have access to cheaper mains gas, and their heating source (typically electricity or oil and often supplemented with wood) with its higher unit price per kWh of energy realised, results in reduced energy buying power.

In Scotland, this results in higher fuel poverty rates in geographic regions which are rural and off grid.⁵ The Prime Minister promised “equal support” for those living off grid. However, the £100 payment announced to these households will not provide equivalence.⁶

The Panel has heard from consumer advocates who represent communities using electricity as the primary heating source. These communities are anticipating annual energy costs well in excess of the ‘average’ £2,500 annual charge. The Panel would also note that the use of averages masks the full extent of fuel poverty, or extreme fuel poverty, faced by vulnerable households with above average consumption and in homes not heated by gas.

The October 2022 Energy Price Guarantee

Even with the UK Government guarantee and the previously announced UK Government mitigations, the Scottish Government estimate that around 860,000 households (35% of all households) in Scotland will be in fuel poverty. Around 600,000 of these households (24% of all households) will be in extreme fuel poverty. The Scottish Government has also estimated that freezing the price cap at £2,500 will prevent around 150,000 households from becoming fuel poor when compared with Ofgem’s forecast price cap of £3,549 for October 2022. However, a price cap of £2,500 (on average) will still see an increase of around 110,000 households entering fuel poverty and 150,000 extreme fuel poverty compared with the current April 2022 price cap of £1,971. The UK Government had originally planned for the Energy Price Guarantee to run until October 2024. However, the Chancellor’s statement of the 17th October, announced that this would end in just 6 months’ time, with no information about what is to replace it after April 2023. This is a cause for concern to the Panel but is also an opportunity for the Scottish Government to urge the UK Government to shape the immediate next set of measures with a sharper focus on supporting the most vulnerable households, and alleviating the growing pressure on people and services.