Gas And Electricity Prices Under The Energy Price Guarantee And Beyond - Not Good

19th November 2023

From the House of Commons Library an article setting out the position published 13 November 2023.

What are current energy prices?
Under the October-December 2023 direct debit price cap the average annual bill for typical gas and electricity consumption is £1,923. This is below the £2,500 level from October 2022 to June 2023, when the Energy Price Guarantee set maximum prices, but 51% higher than in Winter 2021/22. The price cap is expected to increase to around £2,000 for the whole of 2024.

Under the current direct debit cap the average price of gas is 6.9 pence per kilowatt hour (kWh), the average price of electricity 27.4 p/kWh. Average standing charges are 29.6 p/day for gas and 53.4 p/day for electricity.

What is the Energy Price Guarantee?
Following concerns over the effect of a proposed 80% increase in the energy price cap, then Prime Minister Liz Truss announced that the Energy Price Guarantee (EPG) would be introduced from 1 October 2022 and last two years.

The EPG's aim was to reduce the extent of price increases for domestic customers. Under the scheme, the Government set maximum prices for gas and electricity which were below those under the existing price cap. The Government compensated energy suppliers for selling at below cap prices.

Maximum energy prices for customers on standard variable tariffs are set by the lower of the EPG or the energy price cap. The EPG was lower during the period October 2022 to June 2023, so set maximum prices during this time.

The falls in the price cap in July and October 2023 meant the EPG has not been needed in the second half of 2023. The EPG ends in March 2024 and is not expected to be needed again.

How much will customers pay?
The EPG and price cap are normally expressed as an annual figure. This is the annual bill that dual fuel (gas and electricity) direct debit customers with typical consumption levels would face if these prices remained constant across a year. The EPG level was originally set at £2,500 for two years from October 2022 to September 2024. It was later changed to £2,500 for the first nine months (October 2022 to June 2023) followed by an increase to £3,000 for the following nine months (July 2023 to March 2024).

The price increases under the EPG were softened for the first six months by the £400 Energy Bill Support Scheme. This was paid in six separate monthly instalments from October 2022 to March 2023. The Government announced on the morning of the Spring Budget 2023 (15 March 2023) that the planned 20% increase in the EPG would be delayed from April to July 2023.

Without the EPG, customers would have paid more under the price cap between October 2022 and June 2023.

The price cap for July to September 2023 was £2,074. As this was lower than the EPG, customers on standard variable tariffs with typical consumption saw bills fall to this level. The October to December 2023 cap fell further to £1,923.

Annual bills are not capped. Households which use more energy will pay more, those which use less will pay less. Prices vary by region and are currently higher for customers paying by quarterly bills.

Energy prices in Northern Ireland are not controlled by the price cap. The Government provided support for customers in Northern Ireland which was said to be equivalent to the EPG. This meant the largest electricity supplier in Northern Ireland cutting prices in November 2022 to below those in the rest of the UK. However, reduction in this support from April 2023, and its ending from July 2023, have led to price rises in Northern Ireland.

2023 price falls and prospects for further cuts
Wholesale energy prices have fallen from their summer 2022 peaks but there was a substantial lag before these fed through to consumers. The reduction in the price cap in April 2023 was not large enough to take it below the EPG level, so customers did not see their bills fall until the cap fell below the EPG in July 2023.

Unit prices under the July-September 2023 cap were 27% lower than under the EPG for gas and 9% lower for electricity. Standing charges remained the same. The October to December 2023 cap fell further to £1,923; unit prices fell by 8% for gas and 9% for electricity. Standing charges increased by 1%. Typical bills under the October to December 2023 price cap are still be more than 50% higher than in winter 2021/22.

Wholesale prices increased in late summer and autumn 2023. The cap is forecast to increase by around £100 or 5% (on a like-for-like basis) in the first half of 2024 before falling back slightly. While lower than prices from the start of 2023, these forecast prices are considerably higher than pre-2022 levels. Forecasts of the price cap are uncertain so there is no guarantee that prices will remain at this level in 2024.

Lower wholesale prices have led suppliers to start offing fixed tariffs again from summer 2023. However, it's likely that they will be cautious in their pricing and any return of competition to the market is expected to be slow.

With little immediate prospect of savings from fixed tariffs or further cuts in the price cap, the only way to substantially reduce energy bills, while still adequately heating and powering homes, is to improve the energy efficiency of properties.

The fall in the price cap in July 2023 took it to below the EPG level, so customers on standard variable tariffs saw a fall in their bills. Standing charges remained the same. Unit prices fell by 27% for gas and 9% for electricity. The October to December 2023 cap will fall further to £1,923. It is forecast to remain around £2,000 in 2024 (on a like-for-like basis).

While lower than current prices, these future prices are considerably higher than pre-2022 levels. Forecasts of the price cap are uncertain so there is no guarantee that prices will remain at this level in 2024.

Revised Typical Domestic Consumption Values
Ofgem plans to introduce new lower Typical Domestic Consumption Values (TDCVs) for all its relevant publications from October 2023. This will make an average bill for typical consumption look lower, even if prices per unit of energy are unchanged.

Most statistics included in this briefing will continue to use the current TDCVs until after Ofgem makes this change. Where relevant, ie. for price cap forecasts, data on average bills will be presented using both the current and the new TDCVs alongside unit prices to avoid potential ambiguity.

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