The Winter Heating Allowance Is The Least Of It - As Much Worse Will Hit Everyone With Price Hikes In October And January 2025
10th September 2024
Unit prices for gas will increase by 14% in October 2024 and electricity by 10%. Standing charges will increase very slightly.
Despite the general fall in prices since early 2023, typical bills under the September to December 2024 price cap will still be just over 40% 30% higher than in winter 2021/22.
A report at the House of Commons Library
Global prices for gas, electricity, oil and other fuels started to increase from summer 2021 when economies began opening up after pandemic related-lockdowns. This underlying increase was magnified by reduced supply of fuels from some producers and increased tensions between Russia and Ukraine.
Prices increased further in late 2021/early 2022 and spiked after Russia launched a full-scale invasion of Ukraine on 24 February 2022.
The first major impact on domestic customers in Great Britain (those on standard variable tariffs and hence covered by the energy price cap) was a 54% increase in the price cap in April 2022
Wholesale prices for gas and electricity reached new record highs in the UK, Europe and elsewhere during this ‘energy crisis' and have still not returned to their earlier levels.
The crisis led to an unprecedented response from governments across Europe. In the short term this was mainly to support consumers facing much higher prices and, for some, to move away from Russian fossil fuels. Medium to longer term policies in the EU and UK aim to reduce dependence on imported fossil fuels more generally.
The record prices in 2022 would have led to an 80% increase in the energy price cap in Great Britain without intervention from government. The Energy Price Guarantee limited the increase to 27% in October 2022 and meant that domestic consumers paid less than they would have under the price cap until July 2023.
What are current energy prices?
Under the July to September 2024 direct debit price cap the average annual bill for typical gas and electricity consumption is £1,568. This is well below the peak level of £2,380 level under the Energy Price Guarantee from October 2022 to June 2023, but still 29% higher than in Winter 2021/22.
The price cap will rise by 10% to £1,717 in the fourth quarter of 2024, and is expected to increase by a further 3% in the first quarter of 2025.
Under the current direct debit cap the average price of gas is 5.5 pence per kilowatt hour (p/kWh), the average price of electricity 23.4 p/kWh. Average standing charges are 31.4 p/day for gas and 60.1 p/day for electricity.
The average price of gas under the direct debit cap will rise to 6.2 p/kWh in September 2024, the average price of electricity will increase to 24.5 p/kWh. Average standing charges under this cap will increase slightly.
What was 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. This was the government's main measure to reduce the impact of the ‘energy crisis' on consumers.
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 were 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 since in July 2023 meant the EPG was not needed again and it ended in March 2024.
Annual bills for ‘typical' consumption levels
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. Annual bills are not capped. Households that use more energy will pay more, those which use less will pay less.
The EPG level was originally set at £2,500 a year 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). These annual figures were based on the higher assumed ‘typical' consumption levels from the time. £2,500 on these consumption levels was equivalent to £2,380 for the new lower consumption figures which are now used for these illustrations.
Prices vary by region and are higher for customers paying by quarterly bills.
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.
Price falls from 2023
Wholesale energy prices fell in late 2022 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 fall at the time.
The price cap for July to September 2023 was £1,976. Unit prices were 27% lower than under the EPG for gas and 9% lower for electricity. As its annual level was lower than the EPG, customers on standard variable tariffs saw prices fall for the first time since October 2020.
The cap fell further to £1,834 In October 2023. It increased to £1,928 in the first quarter of 2024. As these levels were below the EPG, this mechanism was not needed to set maximum prices again before it ended in March 2024.
The April to June 2024 cap fell to £1,690 for customers with typical consumption levels. Average unit prices for gas and electricity both fell by 9%. Average standing charges increased by 13% for electricity and 6% for gas.
The July to September 2024 cap is £1,568, with unit prices for gas falling by 19% and electricity by 14% and standing charges remained unchanged.
Prospects for prices
Wholesale prices increased in late summer and autumn 2023 and this was reflected in the increase in the cap at the start of 2024. Lower wholesale prices from December 2023 led to the fall in the Q2 and Q3 2024 caps. However, more recent increases in wholesale prices have led to a 10% increase in the cap in the final quarter of 2024 to £1,717. Unit prices for gas will increase by 14% in October 2024 and electricity by 10%. Standing charges will increase very slightly.
Despite the general fall in prices since early 2023, typical bills under the September to December 2024 price cap will still be just over 40% 30% higher than in winter 2021/22.
Higher wholesale prices also mean the cap is currently forecast to increase by almost £50 a year or 3% in the first quarter of 2025. Forecasts of the price cap are uncertain so there is no guarantee that prices will increase in early 2025.
Generally lower wholesale prices have led suppliers to start offering fixed tariffs again from summer 2023. However, it's likely that they will be cautious in their pricing, with prices set close to cap levels. Any return of competition to the market is expected to be slow.
With little immediate prospect of savings from fixed tariffs or substantial 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.
Customers in Northern Ireland
Energy prices in Northern Ireland are not controlled by the price cap and only a minority of households use mains gas for heating. The government provided support for customers in Northern Ireland which was said to be equivalent to the EPG. This resulted in 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, led to price rises in Northern Ireland in 2023. Since October 2023 the cheapest prices from Northern Ireland's largest supplier have been higher than prices under the cap in the rest of the UK.
Revised Typical Domestic Consumption Values
Ofgem introduced new lower Typical Domestic Consumption Values (TDCVs) for all its relevant publications from October 2023. This takes the assumed typical level of gas consumption down from 12,000 kWh per households per year to 11,500 kWh and typical electricity consumption from 2,900 kWh to 2,700kWh.
This change makes an average bill for typical consumption look lower, even if prices per unit of energy are unchanged. However, it does not have affect trends in prices or bills.
Most statistics included in this briefing use the new lower TDCVs. Where relevant, ie. for discussion of EPG levels, data on average bills is presented using both the current and the old TDCVs. Unit prices are also included as these are not affected by assumptions about TDCVs.
Read the full Commons Library report HERE
