Household energy bills in the UK could reach an average of nearly £1,900 per year during the coldest months under the government’s energy price cap, says a leading forecast by analysts at Cornwall Insight. According to the analysts, the price cap is expected to rise from its current level of £1,834 per year to £1,898 for the months of January to March. This increase in energy costs will compound the ongoing cost of living crisis. The price cap sets the maximum price that suppliers can charge based on the average gas and electricity bill, meaning that bills could rise even further if households need to use more heating during a cold winter. The cap remains more than 50% higher than pre-pandemic levels.
The likely rise in gas and electricity bills is attributed to an increase in global gas market prices, particularly in Europe. Concerns about a potential strike at an Australian gas project have led to a surge in European wholesale gas prices to €43 (£37) per megawatt hour in August. Europe has become more dependent on international gas markets since cutting ties with Russia following its invasion of Ukraine. Craig Lowrey, principal consultant at Cornwall Insight, commented that while the rise in prices is small, it highlights the need for policies to address high energy prices becoming the new normal. He also emphasized the importance of transitioning away from fossil fuels to stabilize energy prices.
The energy price cap for the period from October to December is set at £1,834 per year based on revised calculations by Ofgem, the UK’s energy regulator, which take into account reduced electricity and gas consumption due to the cost of living crisis. While the cap for this period was initially announced as £1,923 per year using the previous methodology, Ofgem will now only use the new system in the future.
Fuel poverty campaigners have called for help for the least well-off households in the form of a social tariff for gas and electricity. Over 140 organizations and individuals, including consumer champion Martin Lewis, have signed a letter demanding assistance for households facing unaffordable energy bills, which experts predict will persist for the remainder of the decade. While Cornwall Insight acknowledges that short- and medium-term policies can provide some relief for vulnerable households, they argue that the only long-term solution is transitioning to sustainable domestic energy sources.
The forecasted increase in energy bills effectively nullifies the small decrease in the energy price cap set to take effect on Sunday. However, campaigners warn that even this decrease will not alleviate the financial burden on the most vulnerable households. Peter Smith, the director of policy at National Energy Action, expressed concern about the impact of higher energy prices on vulnerable households, urging the government to provide targeted energy bill support to protect those in need. He highlighted the increasing number of households accumulating energy debt and their inability to cope with higher, unaffordable bills.
The energy price cap, which was introduced to reflect the fair cost of energy supply, is now deemed unaffordable for millions of households since the surge in market prices triggered by the war in Ukraine. Ofgem CEO Jonathan Brearley has previously called on ministers to reconsider whether the price control mechanism is still suitable for the volatile energy market. He acknowledged that while the price cap worked well in a more stable market, it now carries costs as well as benefits, leading to the need for a debate on the future of pricing regulation.
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