The UK's household energy price cap is to rise 80% to an average GBP3,549/year ($4,189/year), energy regulator Ofgem said Aug. 26.
Not registered?
Receive daily email alerts, subscriber notes & personalize your experience.
Register Now"The price of energy has reached record levels driven by an aggressive economic act by the Russian state. They have slowly and deliberately turned off the gas supplies to Europe causing harm to our households, businesses and wider economy. Ofgem has no choice but to reflect these cost increases in the price cap," said Ofgem CEO Jonathan Brearley.
Businesses and Northern Ireland consumers are not covered by the price cap, with reports of commercial energy costs rising fourfold this year.
Support options
In late July the government announced non-repayable handouts of GBP400 off household energy bills from October, spread over six months.
This and other support for households was "delivering help right now, but it's clear the new Prime Minister will need to act further to tackle the impact of the price rises that are coming in October and next year," Brearley said.
The opposition Labour party has called for a freezing of bills for six months at the current rate of GBP1,971/year. This would cost around GBP29 billion, Shadow Chancellor of the Exchequer Rachel Reeves said.
UK utilities, meanwhile, have called for a tariff deficit over two years, freezing bills at current rates with consumers paying back the cumulative debt over the following 10 years or more.
UK Chancellor of the Exchequer Nadhim Zahawi said there was "nothing off the table" when considering new support measures to be proposed to a new Prime Minister, although he did not think a general tariff freeze was focused enough on the hardest hit.
The energy price cap is forecast to rise above GBP5,000/year in January 2023, assuming consistently rising wholesale gas and power prices seen in recent weeks are sustained.
Platts assessed UK spot gas prices at 518 pence/therm Aug. 25, up 95% since the start of the month and up 160% since the start of the year, S&P Global Commodity Insights data showed.
Platts-assessed UK spot power prices spiked to GBP582.50/MWh Aug. 25, up 10% day on day.
Wholesale energy costs now make up around 44% of power and 63% of gas end-user retail bills in London, according to VaasaETT's household energy price index.
Demand destruction
Current forward gas and power prices signal even further increases in the UK energy retail tariff cap in 2023, although Platts Analytics head of European power analysis Glenn Rickson said market prices for winter are "significantly overdone, particularly for French power which (alongside gas prices) are providing most of the impetus for strength in the UK power market."
"We believe the market is currently pricing in something close to a worst-case scenario for all major inputs (Russian gas supply/French nuclear availability/weather risk) and that positive developments on any of them should trigger a selloff in the wholesale market, which would in turn feed through to 2023 retail tariffs," he said.
Current forward wholesale prices (and projected 2023 retail tariffs) also signaled unprecedented demand destruction that in itself would act as a significant weakening influence on prices, Rickson said.
"[Platts Analytics] forecasts a further 4% year on year decline in GB power demand in 2023 vs an already weak 2022," he said.