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Report warns energy prices will rise by £600 despite current price cap cut

Report warns energy prices will rise by £600 despite current price cap cut

UK households are facing the effects of a recent reduction in the energy price cap as the cost of wholesale gas continues to rise. The cap, which limits how much energy suppliers can charge per unit, has been reduced by 7% following a quarterly review by regulator Ofgem. It means the average 12-month bill will now be around £500 cheaper than a year ago. The new cap will remain in place until the results of the next review in October.

However, a report released on Monday by the Energy & Climate Intelligence Unit (ECIU) warned consumers to expect an additional rise of up to £600 on their bills this winter. This is largely due to the continued rise in wholesale gas prices. The report also raised the possibility of a £200 increase in the price cap from October, based on calculations by industry analysts. The cap is predicted to remain at this level until June, but uncertainty still lingers in the market.

Consumer groups are offering an alternative solution to the price cap, pointing to the increasing availability of fixed rate energy deals on the market. This comes after a period of low competition in the industry in recent years. European wholesale costs are currently higher than normal for this time of year, largely due to competition from Asia, particularly China, for liquefied natural gas (LNG). This has resulted in a decline in Russian gas exports, following the country’s invasion of Ukraine in February 2022. The planned extension of the European Union’s sanctions against Russia is expected to further impact gas supplies on the continent.

The average British household paid just under £1,090 for both gas and electricity before the Russia-Ukraine conflict. The ECIU report predicts that households could pay an extra £2,600 in energy bills by September 2025 due to the ongoing gas crisis. The report also highlights that the government has already spent £1,400 per household on energy costs during the crisis, with the potential for even higher costs in the future.

Energy was a major topic of debate during the election, with discussions focusing on costs and the UK’s climate commitments. Dr Simon Cran-McGreehin, head of analysis at the ECIU, said the UK’s heavy reliance on gas for electricity and heating has cost households £2,000 so far during the gas crisis, and has cost the wider economy billions of pounds. He suggested that investing in measures such as insulating homes, switching to electric heat pumps and increasing the use of UK renewables could help reduce the country’s vulnerability to volatile international gas markets. He also pointed out that the decline in North Sea gas production means the UK will become increasingly reliant on foreign imports unless alternative energy sources are prioritised.

Emily Seymour, editor of Which? Energy, expressed relief that the price cap will be reduced by around £122 for the average household from 1 July. However, she also highlighted that the cap is expected to rise again in October, leaving many consumers to consider whether to switch to a fixed rate energy contract. Seymour advises consumers to compare their monthly payments before the price cap against available fixed contracts to determine the best option for their needs. She recommends looking for contracts that are as close to the July price cap as possible, with a maximum term of 12 months and without significant exit fees.