Millions of households are facing a looming energy bill increase of 5 percent starting in April, according to a new forecast by the energy consultancy Cornwall Insight. The anticipated rise in the energy price cap is expected to add £85 to annual bills, pushing the total from £1,738 to £1,823.
The energy regulator, Ofgem, is set to announce the new cap level next Tuesday, February 25, but Cornwall Insight’s previous forecasts have proven to be highly accurate. The price cap establishes a maximum rate that energy providers can charge per unit of energy, a measure that was implemented in January 2019 and is reviewed every three months.
Energy costs soared following Russia’s invasion of Ukraine, which sent shockwaves through the global energy market. Although energy prices have since declined, they remain significantly higher than pre-pandemic levels. Dr. Craig Lowrey, a principal consultant at Cornwall Insight, noted that this upcoming increase will mark the third consecutive rise in the price cap, placing additional strain on already struggling households.
Dr. Lowrey stated, “While we’re not witnessing a return to the peak of the energy crisis, the market is currently more volatile than it has been in quite some time. Households are feeling the impact of cold weather and low gas storage levels throughout Europe.”
The forecasted increase in energy bills has been on the radar for some time, as the volatile energy market has led to price hikes. Recent weeks have seen the cap forecast rise due to a combination of colder weather and reduced renewable energy production, resulting in depleted gas storage levels across Europe and a sharp increase in wholesale gas prices.
Dr. Lowrey cautioned against drawing the conclusion that rising bills indicate a failure of the push towards renewable energy, stating, “Higher energy costs only emphasize the urgent need to accelerate our transition to clean, reliable energy sources in the UK.” He further explained that while expanding renewable energy requires market reform, investment, and time, the alternative could leave households vulnerable to the unpredictable international wholesale market, which has proven to be quite costly.
Experts have expressed growing concern about the ramifications of rising energy bills for households nationwide. Adam Scorer, chief executive of National Energy Action (NEA), remarked, “This will be the third consecutive increase in energy bills, following three years of abnormally high costs. Wholesale prices suggest a further rise this summer. For many, it will feel like an unending winter, with energy becoming a luxury they simply cannot afford.”
Scorer emphasized the dire situation faced by vulnerable households, many of whom are grappling with debt and severely rationing their heating. He called for further action from the government to alleviate these challenges.
Meanwhile, ongoing talks between Russian and American officials aimed at resolving the Ukraine conflict have led to a decline in gas prices. Though this relief may come too late to influence the April price cap, its effects are expected to be felt from July onwards, although fluctuations can still occur. Prices are projected to dip slightly in the third quarter of the year, only to rise again in October.
On Wednesday, the Office for National Statistics (ONS) will release its Consumer Price Index report, with expectations for price increases. The recent surge in energy bills has already put pressure on inflation, which currently sits at 2.5 percent. As noted by the Bank of England’s Monetary Policy Committee (MPC) earlier this month, any further hikes in energy costs could push inflation higher in the months ahead.
Labour’s focus on expanding renewable energy capacity is anticipated to help lower energy bills over the long term. However, the transition from expensive fossil fuels to more affordable sustainable energy, along with a reduction in reliance on the volatile international wholesale market, will take time, funding, and necessary market reforms. Thus, it may be years before households experience a decrease in energy costs.
Dr. Lowrey added, “In the short term, measures like social tariffs and one-off payments will be crucial to protect the most vulnerable and ensure that the burden of rising costs does not disproportionately impact those least able to afford it.”
Simon Francis, coordinator of the End Fuel Poverty Coalition, stressed the urgency of moving towards sustainable and affordable renewable energy. He stated, “As energy bills remain unpredictable and driven by our dependence on global wholesale markets, it is essential to invest in making homes more energy efficient, especially for those living in low-quality private rented accommodation.” He also emphasized the importance of consumers understanding their own energy usage when comparing prices and not relying solely on industry averages, which may obscure the true costs they will incur.