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Ofgem unveils monster price cap of £4,279 as energy bill support costs billions

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Ofgem has announced its energy price cap will rise by a further £700 in the new year – a 20 per cent increase from current record rates.

In its latest quarterly update, the market watchdog revealed that the energy price cap will rise from £3,549 a year to £4,279 a year for average use in January, when the weather is coldest and demand is at its peak.

In total, the government’s support package will deliver savings of up to £1,779 per annum over the January-April period before the next price cap update.

This is because households won’t have to pay the new price cap, with utility bills heavily subsidized under the Energy Price Guarantee – averaging £2,500 a year until April, then £2,500 a year for the following 12 months. Up to € 3,000 per year.

While domestic bills are not reflected, the latest price cap announcement highlights the volatile conditions in wholesale markets and the huge costs associated with the government’s support package.

Cornwall Insight, which was just £34 below the price cap in its forecast yesterday, has raised its own estimates for the total cost of the energy price guarantee.

Energy price ranges continue to rise to new highs (source: Ofgem)

It is now estimated that 18 months of support for families will cost £42 billion, up from previous estimates of £38 billion.

However, this projection is highly dependent on the behavior of highly volatile wholesale markets, which have been heavily influenced by macro factors such as the Russian invasion of Ukraine and the post-pandemic demand boom.

The scheme currently subsidizes the difference between record wholesale rates and the flat rate of 34 pence per kilowatt hour (kwh) for electricity and 10 pence per kWh for gas.

If the wholesale costs increase again, the difference widens again and the cost of the support package increases.

Craig Lowrey, lead adviser at Cornwall Insight, said: “Extending the energy price guarantee, even at a high level, exposes the government to variables and factors beyond its control. Support Levels The risk is reduced by substitution, but remains acute.

Households are facing ultra-high energy bills despite government support

Energy experts expect the cap to remain historically high, but fall from its peak in January to £3,921 from April and then to around £3,400 for the final six months of 2023.

Chancellor Jeremy Hunt told MPs on the Treasury Committee yesterday that total aid to homes and businesses could reach £120bn by the end of next year.

He also revealed that there would be no universal support for homes from April 2024, saying Britons should “take responsibility for their energy consumption”.

Although a shorter than expected winter season and a successful replenishment of European supply have eased market conditions, supply remains tight due to Russian pressure on the continent.

Europe has made efforts to replace supplies with massive and expensive imports of liquefied natural gas from the US and Qatar, along with energy-saving measures that left coal and retired gas plants on standby.

Screenshot 2022 11 24 at 00.47.39 1
Gas prices well above historic norms amid Russian supply shortage (Source: UK Natural Gas Futures – ICE)

National Grid has warned of the possibility of worst-case blackouts in January.

Despite the support, the subsidized household rate of £2,500 a year is still a record cost to household energy bills, and a huge increase from the £1,277 a year price cap that drove energy bills until March.

National Energy Action Director of Policy and Advocacy Peter Smith called on the government to reduce the difference in bills between households paying by check or cash compared to direct debit.

The group calculates that those paying by cash spend £254 more than direct debit customers.

Price guarantee, the basis on which households pay their fuel bill, has risen sharply. like you

He added: “These differences add up and have a huge impact on people who struggle to pay their bills and who are not compensated by the UK Government’s energy price guarantee. Shouldn’t be penalized because of the way they pay. Many have little or no choice. Unless the government intervenes, unfair differences of this magnitude will continue.”

Source: www.cityam.com

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