Why supporting vulnerable households must be at the heart of energy pricing
As temperatures dip, many people across the UK are facing difficult choices about whether to switch their heating on. PoliticsHome sat down with Philippe Commaret, MD for Customers at EDF in the UK, to learn more about how his business plans to support vulnerable customers over the winter.
Over the past two years, energy prices have seldom been far from the headlines. This is far from just a technical, regulatory, or political debate. In cafes, pubs, and workplaces, the cost of energy is something that has dominated conversations across the UK.
As MD for Customers at EDF in the UK, Philippe Commaret is acutely aware of the financial pressures that his business’s customers are facing. He is also one of the people charged with identifying solutions that can help.
When we speak, Commaret is clear about the scale of the challenge faced by UK consumers.
“Since the beginning of this crisis, we have seen an increasing number of customers who are very worried,” he explains. “Last year, I was very impressed by the level of support that government put together to shield customers from the price rise but prices are still twice as high as before the energy crisis.”
Research carried out by EDF highlights the number of households who are currently struggling to pay their energy bills. Commaret told PoliticsHome that the number of EDF residential customers with an unsecured debt – that is a debt that has no repayment plan in place - has increased by 36% since the start of the year.
And worryingly, the proportion of customers who are anxious about the cost of energy is much higher in lower income groups. EDF research shows that 44% of customers with an annual household income of less than £25,000 describe themselves as “very concerned,” almost twice the proportion of those in higher income bands.
Those vulnerable customers, who spend a higher proportion of household income on energy, are a group that particularly concerns Commaret. In recognition of the challenges that they face, EDF has already taken action.
“EDF was the first company to put a support package in place to support vulnerable customers,” Commaret tells us. “We have increased our Winter Support Package to £40m this year so we can provide bespoke solutions that meet customer needs.”
Flexibility emerges as a major theme throughout our sit-down conversation with Commaret. Because the individual circumstances of customers differ, he is clear that solutions must be tailored to be fully effective.
“There is simply no one solution that works for everyone,” he says. “There is not a single trend. The more that customers engage with us, the more we can offer solutions. We can look at ways to reduce usage and reduce cost.”
The data supports Commaret’s view that early engagement leads to better outcomes for customers. Of those EDF customers who were supported with debt relief in 2022, 87% remain debt-free after 12 months, demonstrating that the right support at the right time can help vulnerable customers get back on track.
However, Commaret believes that the current regulatory and legislative framework does not always make it easy for businesses like EDF to target support on vulnerable households. He points to the recent increases in Standing Charges that have disproportionately impacted on households that use the least energy.
“Standing Charges have risen more than 100% on electricity since April 2021,” he explains. “For customers with low consumption that is regressive.”
Commaret argues that the current approach to pricing has simply fallen out of step with an energy crisis that emerged rapidly in the wake of several major global disruptions.
“The change to Standing Charges was the result of a regulatory decision based on a consultation that began in 2017,” he explains to PoliticsHome. “That was two years before COVID and three years before the energy crisis. It came into force at the worst possible moment.”
As a result of those changes, which transferred part of the cost of energy from unit price to standing charges, customers with low usage are now effectively subsidising those who use more energy.
In the short term, this is an unfairness that EDF is addressing through its recently announced £40m winter support package. Around £7.5 million of that sum will be spent on effectively rolling back standing charges for at least 260,000 vulnerable customers to their pre-crisis level.
But Commaret is clear that whilst this industry-led response will alleviate some of the immediate pressures on customers this winter, there is an urgent need for different stakeholders to work together to develop pricing strategies that reflect the needs of vulnerable customers,
“We have a short-term solution for a long-term problem,” he explains. “The current pricing framework was developed in a very different policy context. What businesses need is a grown-up conversation with government and the regulator to develop a sustainable solution.”
This is particularly urgent as continuing market instability means there is no sign that prices will significantly drop soon. That is creating a challenge for customers who have already exhausted savings that might have supported payments in previous years.
Commaret is calling for a wider review of the way that costs are distributed between unit rates, standing charges, and even general taxation. He also argues much can be learned from other European energy markets that have successfully implemented social tariffs to provide long-term targeted support to the most vulnerable.
At the heart of that approach needs to be giving businesses the flexibility to reinvest profits to tailor support to individual needs. It is that flexibility that can lead to more sustainable and effective solutions.
“One size doesn’t fit all,” he explains. “All customers are different. What we need are solutions that can be tailored to meet those needs. If government and Ofgem give us the right tools, we will be more able to meet the needs of customers who are currently struggling.”
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