Households across the UK are facing the effects of a recent reduction in the energy price cap, as the cost of wholesale gas continues to rise. The cap, which limits how much energy suppliers can charge per unit, has decreased by 7% following a three-month review by industry regulator Ofgem. This means that the average 12-month bill will now be approximately £500 cheaper than it was a year ago. The new cap will remain in effect until the results of the next review take place in October.
However, a report released by the Energy & Climate Intelligence Unit (ECIU) on Monday warned consumers to expect an additional increase of up to £600 on their bills this winter. This is largely due to the continuing surge in wholesale gas prices. The report also mentioned the possibility of a £200 hike in the price cap from October, based on calculations by industry analysts. It is predicted that the cap will remain at this level until June, but there is still uncertainty in the market.
Consumer groups are offering an alternative solution to the price cap, pointing to the increasing availability of fixed-rate energy deals on the market. This comes after a period of low competition in the industry in recent years. European wholesale costs are currently higher than usual for this time of year, largely due to competition from Asia, particularly China, for liquefied natural gas (LNG). This has resulted in a decrease in Russian gas exports, following the country’s invasion of Ukraine in February 2022. The European Union’s planned extension of sanctions against Russia is expected to further impact gas supply across the continent.
The average UK household was paying just under £1,090 for both gas and electricity before the Russia-Ukraine conflict. The ECIU report predicts that by September 2025, households could have paid an extra £2,600 on energy bills due to the ongoing gas crisis. The report also highlights that the government has already spent £1,400 per household on energy costs during the crisis, with the potential for even higher costs in the future.
Energy has been a major topic of debate during the election, with discussions focused on costs and the UK’s climate commitments. Dr Simon Cran-McGreehin, head of analysis at ECIU, stated that the UK’s heavy reliance on gas for electricity and heating has cost households £2,000 so far during the gas crisis, and the economy as a whole has lost billions of pounds. He suggests that investing in measures such as insulating homes, switching to electric heat pumps, and increasing the use of British renewables can help reduce the country’s vulnerability to volatile international gas markets. He also points out that the decline in North Sea gas production means that the UK will become increasingly reliant on foreign imports unless alternative energy sources are prioritized.
Emily Seymour, editor of Which? Energy, expressed relief that the price cap is being lowered by approximately £122 for the average household from July 1st. However, she also highlighted that the cap is expected to increase again in October, leaving many consumers to consider whether they should switch to a fixed-rate energy deal. Seymour advises consumers to compare their monthly payments on the price cap to available fixed deals to determine the best option for their needs. She recommends looking for deals as close to the July price cap as possible, with a maximum duration of 12 months and no significant exit fees.