Energy Bills: What is Happening to Gas and Electricity Prices?
The typical annual energy bills will rise by £60 to £1,723 in October, under regulator Ofgem’s latest energy price cap. This increase of around 4% is due to higher wholesale gas costs, influenced by the US-Israel war with Iran.
What is the Energy Cap and How is it Changing?
The energy cap fixes the maximum amount customers on standard variable tariffs can be charged for each unit of gas and electricity used. It covers approximately 33 million households in England, Wales, and Scotland, and is set every three months by Ofgem.
Of this number:
- Around 19 million pay by direct debit
- Around 7 million pay by standard credit
- Around 6 million have prepayment meters
Most of the increase is driven by higher gas prices, with gas bills rising by 8%. Consequently, households that do not use gas will see a smaller increase of less than 1% in their energy bills.
The government’s decision to remove VAT from domestic electricity bills has also influenced the new price cap. Ofgem states that without this cut, the typical annual bill would have been £45 higher.
While Ofgem’s director general for markets, Neil Kenward, stated that the price rise for October to December is technically 3.6%, Ofgem rounds the number, hence the publicised 4% figure.
Understanding Your Bill
The typical annual usage figure applies to dual-fuel households on a standard variable tariff paying by direct debit. However, actual bills vary depending on energy consumption and payment methods.
For the approximately 11 million households on fixed tariffs, this increase will not affect them.
Ofgem regulates the energy market in England, Scotland, and Wales, while Northern Ireland has a separate system.
Defining a Typical Household
The energy cap sets unit prices for gas and electricity, but individual bills depend on energy use and payment methods. Factors influencing bills include location, property type, energy efficiency, occupancy, and weather.
Ofgem calculates a "typical" household’s energy use based on a single bill for gas and electricity paid by direct debit, considering a year’s consumption of 11,500 kWh of gas and 2,700 kWh of electricity. However, it is adjusting this "typical" energy use due to reduced consumption by many households in recent years.
