UK households could face a 5% increase in energy bills from January 2024, as a result of the rise in wholesale gas prices and the adjustment of the energy price cap by Ofgem. The energy price cap is a limit on how much suppliers can charge customers per unit of energy on standard or default tariffs, which cover about 29 million households in Great Britain.
The energy price cap is set every three months by Ofgem, based on the wholesale market price of gas and electricity, which has been volatile due to factors such as the Israel-Hamas war, the Russia-Ukraine conflict, and the global recovery from the pandemic. The energy price cap for October to December 2023 is £1,923 for a typical dual fuel bill, which is £151 less than the previous cap and £577 down on last winter, due to a drop in wholesale prices earlier this year.
However, Ofgem will announce the next price cap for January to March 2024 on 23 November, and analysts at Cornwall Insight have predicted that it will rise by 5% to £1,931 a year, before starting to fall from the end of March. This means that millions of households will see their energy bills go up by around £100 a year, unless they switch to a cheaper deal.
Despite the fall in the current price cap, many households will not feel better off, especially when it comes to energy bills, as government support for bills is no longer in place. The government had introduced a temporary Energy Price Guarantee from October 2022 to June 2023, which limited a typical household’s annual gas and electricity bill to below £2,500, regardless of the Ofgem cap. The government had also offered a one-off £140 Warm Home Discount to low-income households and a £50 rebate to all households, which were funded by a windfall tax on energy suppliers.
The government has also committed to installing 600,000 heat pumps a year by 2028 to replace gas boilers, and is offering grants of £5,000 to help homeowners in England and Wales install a heat pump. Heat pumps use electricity rather than gas and are more efficient than boilers, as they work by extracting heat from the air, ground or water and transferring it to the home.
The government’s plan to switch to low-carbon heating is part of its pledge to achieve net zero emissions by 2050 and to make all of the UK’s electricity come from low carbon sources by 2035. The UK has been successful in cutting carbon emissions from electricity generation by around three-quarters since 1990, due to a declining use of fossil fuels and an increasing use of renewables and nuclear power.
However, the UK still relies heavily on fossil fuels for its total energy needs, which include things like petrol cars and gas heating, and that the government is granting 100 oil and gas production licences for the North Sea. The government says that it wants to reduce the UK’s reliance on imported energy from “hostile states” and that some fossil fuels will still be needed when net zero is reached. The Climate Change Committee, the government’s independent advisers, say that the expansion of fossil fuel production “is not in line with net zero” and that the UK should phase out oil and gas extraction as soon as possible.
