Winter Energy Prices to Reach Three-Year High
British households are bracing for a significant increase in energy bills this winter, with predictions of a three-year high. The rise is attributed to the rising wholesale cost of gas, which the industry regulator, Ofgem, will reflect in a new price cap set to be announced on Wednesday.
Analysts anticipate a 4% increase in energy prices compared to the current cap, affecting those on variable tariffs in England, Scotland, and Wales. This news comes as colder weather approaches in October, potentially leading to higher bills until the end of December.
Firms are calling for more support for customers struggling to pay their energy bills, as high prices persist. The government has announced a reduction in VAT on electricity bills, but many are still concerned.
The price cap, expected to affect around 33 million households, is being adjusted due to volatility in international gas prices, which have been 61% higher over the past three months, according to Energy UK, a suppliers’ trade body.
Many consumers have switched to fixed energy tariffs in response to recent events, such as the US-Israeli conflict with Iran, which created uncertainty in the energy market. However, those on fixed deals will not be affected by the price rise until the end of their tariff period, which is currently held by about 40% of billpayers.
The energy cap sets a maximum price for each unit of gas and electricity, not the total bill. Therefore, individual household bills depend on their energy consumption.
In July, Ofgem adjusted its estimate of a "typical" energy use level, considering many homes have reduced their energy consumption due to high prices and improved energy efficiency. The new estimate stands at 9,500 kWh of gas and 2,500 kWh of electricity annually.
According to Cornwall Insight, a consultancy, a household using a typical amount of gas and electricity, paying through direct debit, can expect to pay £1,729 per year from October, marking the highest cost in three years.
The energy crisis has led to a significant increase in unpaid energy bills and charges, totaling an estimated £6-7 billion collectively, with an average debt of £3,500 per customer without a payment plan. Energy UK has called for a flexible discounted tariff to aid struggling consumers.
