ScottishPower's Keith Anderson warns energy crisis price cap to soar by further £600

He claimed that retailing gas and electricity was "not a sustainable sector" as he insisted as much as £10 billion is needed to be found from government to take the heat out of the energy crisis for the most vulnerable.

Mr Anderson says the cap is "not fit for purpose" after around 1.5m Scots households were hit when they saw their energy bills soar by up to £693 a year this month as the regulator Ofgem hiked the price cap by the biggest increase yet.

Ofgem has admitted that the energy price cap, which was meant to ensure customers were not charged unfair prices, needed to adapt to rapidly changing market prices.

The average household dual fuel tariff jumped from £1,278 to £1,971 as energy regulator Ofgem raised the price cap by 54% on bills to reflect sky-high wholesale gas prices.

But now ScottishPower chief says that in October that could rise to between £2550 or £2600 in October - although he accepted the market was subject to fluctuation.

Mr Anderson has previously called for the poorest people in the country to get £1,000 off their energy bills amid warnings that four in 10 could fall into fuel poverty in October.

But he has told MSPs that he does not think there was a compelling case for a freeze of the energy price cap in October - saying that that would risk further energy company insolvencies in the wake of a series of failures.

Some 30 energy companies have stopped trading in the UK since last August leaving more than four million customers seeing their energy firm collapse.

Ofgem has said the collapse during the gas price crisis has cost each household about £68 - about 10% of the latest energy price cap rise.

The watchdog now wants to review the price cap every three months, instead of every six months at present.

Speaking to MSPs at the Scottish Parliament net zero, energy and transport committee, Mr Anderson warned that a support scheme needs to be agreed by June or July adding that he thought otherwise it would be "impossible to believe" anything could be implemented by October, unless it was a "very blunt, wide scheme".

The latest 54% rise, which will impact half the population, was said to be driven by a record rise in global gas prices, with wholesale prices quadrupling in the last year.

Mr Anderson said there was no compelling case for a freeze on any increase in the price cap saying it risk further energy firm failures.

"I think the problem is if you do that without any support coming into the industry in the sector, I think you really risk seeing more and larger company failures because of the size of the losses that have already been experienced in the sector.

"That's why I said I think we need to move to a position where we end up with some kind of fund being created that alleviates a significant proportion of the impact on pain for consumers. So there is absolutely no doubt that this is going to affect a huge number of people.

"It's going to affect them really, really hard. It could be truly horrific for a large number of people.

"And they need help and they need support.

"But what we also need is we need an energy retail sector that's sustainable, and makes business sense. "

Referring to the additional cost to the consumer of energy firms going bust, he added: "So that's why I would say to you, if you wanted a one word answer about whether the price cap is fit for purpose, the answer I would give is no. And that's why there is so much reform going on just now in terms of financial resilience controls for companies that operate in this marketplace.

"I'm fortunate I'm part of a group that is very successful, that is very large and on the back of the huge, massive investments we've made in renewables and the massive investments we've made in networks in this country and across the world we have the financial strength of financial resilience to withstand taking a loss in this marketplace. But that puts me in a very fortunate position."

Ofgem has been widely criticised for failing to control the market and putting consumers at risk.

Its move to double the number of energy cap price reviews to four a year from two is part of its proposed plan to get the energy market back under control.

The regulator is also consulting on reducing the advance notice it gives to suppliers of the updated price cap level, from two months to one.

Mr Anderson has said the cap system should be scrapped in the longer term in favour of a social tariff to ease the price hikes for those in fuel poverty, paid for by those who can afford to pay or through government support.

"I think anybody would know look at the cap and the regulators now look to the cap and say the current methodology and the current version of the cap is not fit for purpose,"he said. "It has not been able to cope with the volatility that we've seen in the marketplace. It has not been able to cope with the significant shifts that we've seen in the marketplace as well.

"There are a lot of changes being proposed and discussed to the price cap. And some of those are also around financial resilience of companies that operate in the marketplace.

"We've seen 30 companies go bankrupt and shut down I would put those into two categories. There were a number of them that were just clearly not running a sustainable business model. And they were running a model that was based off accelerated growth based off using customer credit balances to fund that growth. And eventually, the real life caught up with them and they ran out of money because of the volatility in the market and they've shut down.

"There are a number of other companies who have probably gone bust who were running a more realistic, more sustainable business model and unfortunately just because of the size and scale of the volatility, and the amount of money involved in that volatility have been unable to survive."

Ofgem said the first wave of energy supplier collapses had forced it to rethink the way it regulated the industry, which was likely to mean stricter regulation of companies but may also spell more frequent bill increases.

The regulator said companies, many of which did not hedge against high wholesale gas prices, were not resilient enough and financial regulation needed to be significantly enhanced to ensure that they were, including a tougher stress testing regime.

Mr Anderson told MSPs that retailing gas and electricity was just not profitable.

"In the UK, we operate three businesses. We operate our renewables business, networks business and a retail business. We are not making money retailing gas and electricity.

"It's not a sustainable sector. The price cap theoretically should allow me to make a 1.9% margin that is not happening at this point in time in any way, shape, or form."

He added: "I perfectly understand why the cap was introduced. But one of the myths in the lead up to the introduction of the cap was that this was a low risk industry. It is quite clearly not a low risk industry.

"There are significant risks in operating in this industry. And that's why it becomes so important to make sure that there are proper financial resilience controls that the regulator should look at.

"The regulator is consulting on those just now, you could argue it's too late, but it's better late than never. And I think it will be a good thing to look at those resilience controls."

He told MSPs of his belief in the midst of the energy crisis, that in the interim, a deficit fund should be established to allow people 10 years to pay off £1,000 on their bills.

"We are already seeing the levels of anxiety for customers go up quite significantly about what they will do and how they will manage," he told MSPs.

"And my proposal for dealing with this as I think it requires a much more significant and structural shift in what policies that governments have brought forward to date.

"So whether you use a definition of people on warm home discount or you use the definition of fuel poverty or the definition of vulnerability, for those people £1000 would be taken off their bill. "That would put their bill roughly back to where it was before the gas crisis and allow them to manage through this period of time.

"The money could be put in a fund underwritten by the government.

"And that fund would be repaid over something like a 10 year period, given the size and scale of it.

"There's an estimation to show that we could see as many as 40% of homes in the UK being deemed to be in fuel poverty, by the time we reach October.

So you are talking about your £1000 for 10,000 homes, that's £10bn. It's a significant amount of money and that's why I say I think that level of intervention, that level of impact has gone way beyond what I can do and way beyond what the industry can do and so it requires the backing of the government in terms of doing that.

"The really, really important thing is that should not be seen in any way shape or form as a reason not to push ahead with near zero and not to push ahead with energy security because that will ultimately help all of us in the medium to long term.

"Wind as the cheapest form of generation on the system. The more we invest in the future of wind, whether it's onshore or offshore, the more we invest in solar as a country, the more we will bring the cost of energy down. And the more we will make the energy source and security, better and stronger as well."