UK Households Face Steep Rise In Winter Energy Bills

Standard gas and electricity bills are expected to rise to an average of £1,250 due to a surge in commodity prices to near 13-year highs.

Millions of UK homes face a hike of more than £110 per year in their winter energy bill, say industry experts. A standard bill for both gas and electricity is expected to climb to an average of £1,250 this winter, following a ‘massive price rise’ as global energy market prices soar to levels not seen since the financial crisis in 2008.

A surge in demand for gas in Asia and a long European winter have left reserves on the continent at record low levels, according to energy market analysts, resulting in market prices for gas and electricity rallying to near 13-year peaks recently and leading to higher bills for UK homes this winter.

Martin Lewis, founder of the consumer website Money Saving Expert, says consumers can expect ‘huge rises’ on their bills, of up to £112 per year, from October. He has never seen the energy market behave in this way. Wholesale prices, which suppliers pay, have rocketed. The cheapest fixed deals are around £100 a year more now than they were only three months ago, and £200 a year more now than they were a year ago, he adds.

Suppliers cannot implement incremental increases to their standard tariff rates, to match the steady rise of market prices, until the regulator lifts the cap on energy bills. This means the surge in winter bills is more likely to take households by surprise this coming winter.

Most of UK to bear cost of rising prices

The regulator Ofgem sets the maximum rate twice a year in April and October at which suppliers can charge homes using standard variable tariffs for their energy. These are based on the costs borne by suppliers.

Earlier this year, the regulator confounded consumer groups by raising the cap for the first time in two years, although many households face increasing financial difficulties due to the economic impact of Covid-19. The latest price cap included a £23 charge to enable energy companies claim back the money they have lost because of unpaid bills during the pandemic.

The regulator is expected to raise the cap for the average dual-fuel energy bill by £112, up from £1,138 a year to £1,250 a year. Lewis says ‘most of the country’ will bear the cost of the rising prices because even smaller energy suppliers, which can charge lower rates for their tariff, have started to increase their rates in line with the regulated cap. Consumers will see huge price hikes and have to prepare themselves by seeking out the best energy tariffs, he believes.

A spokesman for the regulator said their job in setting the energy price cap is to ensure that households pay a fair price for energy, no more, no less. When the cap is next updated, they will ensure that only the fair costs of supplying gas and electricity are passed on to consumers.

Electricity supply disrupted by old power plants

Craig Lowrey, senior consultant at Cornwall Insight, thinks it likely that households will see a considerable rise in the winter price cap, following a price rise in wholesale energy costs, peaking at some of the highest seen since the ‘beast from the east’ in 2018.

Wholesale prices, he says, have been hit by a combination of factors. He believes the rising global price of gas shipped on liquified natural gas tankers, plus the higher cost of European carbon prices, will keep the UK’s energy prices high.

In addition, he says the UK’s electricity system faces tighter power supplies this year compared with last winter, due to ‘unforeseen and prolonged outages in several ageing fossil fuel and nuclear plants’.

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