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The 2022 Energy Price Guarantee

The new energy price caps announced by the government in September (the Energy Price Guarantee) will represent welcome relief for both households and businesses, coming in addition to previously announced energy pricing support for domestic users.

The measures comprise a stimulus package which is likely to ultimately be similar in magnitude to the support provided by the government during the pandemic and which will impose an effective price cap on domestic energy bills at £2,500 per year on the average bill through to October 2024. A similar level of support will be provided to businesses and other non-domestic users for a shorter period of six months, together with on-going support past that point to be targeted at vulnerable industries.

In addition to the above measures, the government has also been working with the Bank of England to structure an additional £40bn of funding to support the liquidity requirements of energy trading companies.

This extraordinary level of intervention ushers in a new period in the UK’s journey towards net zero, during which we believe that the government will place more immediate focus in the short term on ensuring a secure and reliable supply of domestically produced energy. By definition, this means a pivot back towards traditional energy sources, as the government seeks to encourage additional shale production, issue new licenses in the oil and gas space and continue the expansion of the UK’s nuclear generation capacity.

As each of the above initiatives are capital intensive and take time to commission, their effect will not be felt immediately. However, the fact that the government is reaching for these more traditional energy sources must be a tacit signal that it is willing to reconsider its approach to the timeframes for achieving the UK’s net zero transition goals.

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