According to the latest forecast, UK households will face average annual energy bills in excess of £5,000 over the next year, increasing pressure on the government to step in to ease the spreading cost-of-living crisis.
Advisory firm Auxilione’s warning follows a sharp rise in UK wholesale gas prices this week and came as power generators met ministers at Downing Street on Thursday to discuss a response to the impact of rising wholesale energy prices, largely fueled by Russia’s shortage of electricity Gas supplies were caused Europe.
After the meeting, outgoing Prime Minister Boris Johnson said the government would “continue to urge the electricity sector to keep working on ways to ease pressure on the cost of living and to invest further and faster in Britain’s energy security”.
The energy price cap, which governs gas and electricity bills for the vast majority of UK households, has already risen from £1,277 to £1,971 this year. Earlier this week, another forecast suggested it would hit £4,420 next April, more than triple the level at the start of 2022.
Auxilione said it expects regulator Ofgem to set the price cap at “just over £3,600” when it announces the results of its next review, which is now held every three months on August 26. That increase would come into effect in October, before the cap was expected to exceed £5,000 in the first half of 2023, the consultancy added.
Earlier this week, Cornwall Insight forecast the ceiling would hit £4,420 in spring, but wholesale gas and electricity prices have continued to rise in recent days.
Chancellor Nadhim Zahawi, who also attended the meeting, said growers had agreed to work with ministers to “do more” to help the weaker households in a “spirit of national unity”.
The Auxilione forecast follows warnings of a severe drought affecting the movement of coal and other commodities on Germany’s Rhine, a key artery supplying power plants. Norway has also signaled that it will restrict electricity exports.
Gas prices have skyrocketed as Russia cut supplies to Europe, a move European politicians have described as “weaponizing” gas supplies following the all-out invasion of Ukraine.
Soaring energy bills have become a key issue in the ruling Conservative Party’s leadership election, which will see a new Prime Minister elected to succeed Boris Johnson in early September.
Rising inflation and fears that sky-high energy prices will plunge the broader economy into a deep recession as households cut spending have prompted calls for more aggressive government intervention, from additional financial support to an overhaul of how electricity markets work.
The prospect of an unexpected tax on power producers, some of which have made record profits from renewables and nuclear power, has resurfaced.
Business and Energy Minister Kwasi Kwarteng – widely touted as the next chancellor if Liz Truss becomes prime minister – is exploring options to decouple electricity prices independently from gas production.
Kwarteng was also present at the meeting with companies such as EDF, Centrica, Drax, RWE and ScottishPower.
Former Chancellor Rishi Sunak, who is running against Truss, has accused his rival of being slow to appreciate how worried households are at the prospect of rising bills. He has promised to expand a £15billion support package he announced in May when bills were expected to hit around £2,800 in October.
Truss has said she prefers tax cuts to “handouts” but has left the door open to additional support. She said Wednesday it was “important” to work with energy companies to bring prices down.
Auxilione said the government seemed to have “little appreciation” for “how impossible” it was to lower prices. “Energy companies and the government have little control over it in such a globally influenced market,” she added.
Ofgem has warned against price cap projections given the volatility of energy prices.