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Britain’s household energy price cap is set to climb by 5 per cent in the new year, in a setback for the government’s efforts to curb inflation.
Ofgem, Britain’s energy regulator, has raised the price cap for the January to March period due to a rise in wholesale gas and electricity prices, which will mean bills for a typical household will rise to £1,928 a year, up from £1,834 currently.
The figure is significantly lower than in January when the cap hit £4,059 following a surge in wholesale prices triggered by Russia’s war on Ukraine, prompting the government to step in to subsidise households’ energy bills.
But it remains far higher than pre-2022 averages of below £1,200, putting many households under pressure after blanket government support on energy bills ended in April.
Wholesale gas prices have fallen sharply since the peak of the crisis but remain more than double the long-term average, and have climbed since June due to the fragility of European supplies.
Threats of strikes by workers at gas facilities in Australia and the Israel-Hamas war have threatened seaborne supplies of liquefied natural gas on which Europe is increasingly reliant on following the steep drop in imports from Russia.
Speaking to BBC Radio 4’s Today programme on Thursday, Jonathan Brearley, Ofgem’s chief executive, said: “Any unexpected event — for example the Middle East situation — does constrain the supply of gas and that drives the price back up.”
“We have had a major producer of gas — Russia — exit the market — so the market’s very tight,” he added.
The wholesale price of gas for next-day delivery in Britain on November 15 was 105p per therm, up 13 per cent compared with the price on September 15.
Gas is used to heat the vast majority of British homes and is used to generate electricity in more than a third of the country’s power stations, leading to a knock-on effect in the cost of electricity.
The price cap was introduced in 2019 to protect consumers and puts a ceiling on the unit rate suppliers can charge, rather than on total bills. It applies to households on default tariffs.
On a per unit basis, the cap for the January to March period will be 29p per kilowatt hour for electricity, with a daily standing charge of 53p, and 7p per kWh for gas, with a daily standing charge of 30p.
Stew Horne, head of policy at the Energy Saving Trust, an organisation that promotes sustainable energy use, warned that “this winter and the months ahead will be challenging” and said the government needed to do more to improve energy efficiency in people’s homes.
Craig Lowrey, principal consultant at energy market experts Cornwall Insight, called for a “long-term strategy that reduces our dependence on imports of energy — particularly gas”.
The vast majority of British households are currently on default tariffs after suppliers pulled more competitive, fixed deals during the market turmoil triggered by Russia’s war on Ukraine.
However, Brearley pointed out that energy suppliers were starting to offer more competitive tariffs, which would allow customers to “save about £50 or £100”.