The energy price cap will rise by 10 per cent in October, the regulator Ofgem has just announced.
So what does this mean for energy bills and how does it compare to previous years?
FactCheck takes a look.
How much will energy prices rise by?
Ofgem said a household using a typical amount of gas and electricity would pay £1,717 a year from October – when the new price cap comes into place.
This will be a £149 a year rise compared with a current typical annual bill of £1,568.
The price cap – updated every quarter – sets the maximum amount suppliers can charge per unit of gas and electricity, with standing charges taken into account.
It is not a cap on customers’ overall energy bills, which will still rise or fall in line with their energy consumption.
Those living in larger properties tend to pay more overall due to higher energy usage, with those in smaller properties usually paying less.
How much have prices risen since 2019?
The price cap was first introduced by Ofgem on 1 January 2019 to make sure that energy bills accurately reflected the cost of energy.
The below graph from Ofgem shows how the average annual cost has changed since then.
Prices were relatively stable at around £1,000 until they began to rise in summer 2022 to around £1,900, reflecting Russia’s invasion of Ukraine earlier that year.
Prices reached a peak of £4,000 a year by March 2023.
By the following winter, they’d fallen again – and have mostly declined since the start of this year. But as of October, the average household will still pay £628 more than they did in the winter of 2019/20.
Source: Ofgem
Why are energy prices rising again now?
Professor Michael Waterson, from the University of Warwick’s economics department, told FactCheck that at the wholesale level, both electricity prices and gas prices in the UK are “essentially determined by the European, if not world, price of gas”.
He said that these European prices “are affected not only by the ongoing conflict in Ukraine, but also by the very unsettled situation in the middle east, because significant gas comes from the middle east in tankers”.
Prof Waterson noted that suppliers to the domestic market will buy a “portfolio” of gas and electricity into the future, but this means if prices rise, the price of the portfolio will rise and therefore trigger higher prices for consumers.
A portfolio means that rather than buy day to day or week to week, suppliers will buy for months or even years ahead as a way of reducing risk.
Jonathan Brearley, CEO of Ofgem, said: “Ultimately the price rise we are announcing today is driven by our reliance on a volatile global gas market that is too easily influenced by unforeseen international events and the actions of aggressive states.”
He added: “We know that this rise in the price cap is going to be extremely difficult for many households. Anyone who is struggling to pay their bill should make sure they have access to all the benefits they are entitled to, particularly pension credit, and contact their energy company for further help and support.”
(Image credit: Andy Rain/EPA-EFE/Shutterstock)
