Householders in the UK are set to see the cost of gas and electricity fall this autumn as a result of plans to reduce the energy price cap. However, in real terms, people will be paying more, as last year’s Energy Bill Support Scheme has finished and there are no plans to resurrect it.
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The regulator Ofgem sets the price cap to dictate how much suppliers can charge customers for each unit of electricity and gas they use: an average UK household currently pays £2,074 per year for its electricity and gas.
Following news that the energy price cap will reduce on 1st October, the average annual bill is set to fall to £1,923. This will last for three months until the end of December 2023, when Ofgem will review it again.
However, last winter, UK households received a £400 refund on their energy bills through the Energy Bill Support Scheme. This means even with the lower price cap; the average household will be worse off. Last year, on average, customers paid £1,674 per year, taking into account the £400 refund.
How does the energy price cap work?
Energy prices in the UK have been rocketing in recent years. Prices soared following Russia’s invasion of Ukraine, which impacted the economy internationally.
The British government responded by launching the Energy Bill Support Scheme, giving every household a £400 discount on energy bills in winter 2022. This ended in March 2023, when the Energy Price Guarantee expired. There are no plans to reintroduce it this winter. The Ofgem cap will solely determine household energy bills again.
Ofgem bases its calculations on the energy bills of an average household, using a figure of 2,900 kWh for a customer’s annual electricity use and 12,000 kWh for annual gas use.
Between 1st July and 30th September 2023, the cost of electricity is 30p per kWh and gas is 8p per kWh. Between 1st October and 31st December 2023, the cost of electricity will reduce to 27.35p per kWh and gas will be 7p per kWh.
Energy price cap future predictions
Energy analysts are estimating that the energy price cap will increase marginally to £1,932 between 1st January and 31st March 2024. It is then expected to drop again to £1,867 from 1st April to 30th June 2024.
Ofgem bases the energy price cap on the costs that energy suppliers are expected to incur when buying electricity and gas on wholesale markets. It is set to fall in October and then rise again in January because when energy is in short supply, prices usually go up. They then go down again when there’s not as big a demand.
In January, in the middle of winter, when everyone is using central heating, energy will not be as plentiful as it will be at the end of a particularly hot September.
How are householders paying their bills?
Millions of UK families are routinely using credit cards and loans to pay basic household expenses, such as energy bills.
Research by the Joseph Rowntree Foundation, published in July 2023, revealed around 2.3 million low-income families across the UK had taken out loans or used credit cards to pay essential bills during the economic crisis.
The study has also found 75% of low-income families are in arrears with at least one household bill, while 44% are in arrears with three or more bills. In addition, 2.8 million low-income households have been turned down for a loan between May 2021 and May 2023. This can be due to factors including low earnings, or a poor credit rating.
Sadly, experts are warning the energy crisis is far from over. Relatively mild temperatures in Europe last winter helped to avoid a chaotic situation. However, analysts point out that to solve an energy crisis, it’s necessary to invest in additional energy production plants.
According to professors at Sciences Po Paris, leaders across Europe have failed to launch any new projects.
While energy remains in short supply, the crisis is set to continue for the foreseeable.