Households endure another year of energy bill misery due to ‘volatile’ market

Households have endured yet another year of energy bill misery as the ongoing effects of the pandemic and Russia’s invasion of Ukraine highlighted the UK’s susceptibility to the highly volatile wholesale market.

The year started with Ofgem’s energy price cap rocketing to more than £4,000 a year for the typical household, although households received £400 towards their bills, which were limited by the Government’s energy price guarantee to an average £2,500.

Bills have dropped since then, but the price cap will rise slightly again to just over £1,900 from January 1 – still significantly higher than before the energy crisis began.

Charities have warned that many households are struggling to pay for their energy, and that more than one million of the UK’s most vulnerable adults will be living in “Dickensian” cold and damp homes this Christmas.

Research by the Warm This Winter campaign suggests that around 850,000 (9.6%) of people who have a child under six or who are pregnant are frequently exposed to mould.

Gillian Cooper, director of energy at Citizens Advice, said: “This year has seen record high levels of people in debt to their energy supplier, and the numbers are growing. Millions more are struggling to pay their bills or top up their prepayment meter, with many resorting to borrowing to make ends meet.

“In no other year have we seen so many people come to us for help. We hear from people every day who can’t afford to keep their home warm, keep the lights on or make hot meals, and while we welcome government support so far, it simply isn’t enough.

“The government must step in with more targeted support for energy bills to help people through the winter.”

However, there is some light at the end of the tunnel, with forecasts suggesting that the price cap will fall to £1,660 in April, and again to £1,590 in July before a slight increase to £1,640 from October.

The positive trend follows a significant drop in wholesale energy prices since mid-November, helped by a relatively mild winter to date and contrary to concerns that the Israel-Hamas conflict and problems such as potential LNG production strikes in Australia would affect supplies.

Coupled with a relatively mild winter to date, European gas stores are above expectations, helping to drive down prices.

However, analysts Cornwall Insight warn that while forecasts have improved for now, global events such as the pandemic, the Russian invasion of Ukraine, and the conflict in Gaza have highlighted the susceptibility of UK energy prices to external factors.

It cautions that prices could therefore rebound if future incidents, such as the disruption to shipping through the Red Sea, raise concerns over disruption to supplies.

Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “As households brace themselves for energy bill rises in January, current forecasts of price cap dips later in the year may offer a small light at the end of the tunnel.

“However, history has shown that the wholesale energy market is highly volatile, and unexpected global events can lead to spikes in energy prices, ultimately feeding through to household bills – as we saw this time last year. Whether concerns in the Red Sea become heightened, or another potential disruption to supply occurs, there are no guarantees the price cap will not rise again.”

“The current scarcity of fixed deals lower than the cap further complicates the situation.

“With few affordable alternatives, households are left at the mercy of market fluctuations.”

Which? Energy editor Emily Seymour said: “The amount many of us pay for our energy has changed dramatically over the last year. In early 2023, the energy price cap skyrocketed to more than £4,000 a year for the typical household, although consumers paid £2,500 under the energy price guarantee and received an additional £400 towards their energy bills.

“The price cap will be just over £1,900 a year for a typical household from January, and is predicted to stay around £1,800 throughout 2024.

“While this is a significant decrease from early 2023 prices, energy bills are still substantially higher than they were before the energy crisis began and many households will struggle to afford their bills.

“If you are concerned about struggling to pay higher bills, there is help available.

“Speak to your energy provider about a payment plan you can afford and check to see if you qualify for any government schemes.

“Fixed deals are starting to return to the market but we wouldn’t recommend fixing anything higher than the unit rates and standing charges in your current deal or for longer than a year.

“If you are offered a deal, then it’s really important to check the tariff’s exit fees in case you want to leave that deal early if the price cap comes down.”