Millions of Britons poised for £500 energy bill boost

Adam Scorer calls for 'targeted financial support' on energy bills

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Energy bills for households could be £500 lower than expected in the coming months thanks to plummeting gas prices, which could bring relief to millions of households across the country. Analysts at Investec forecast that the energy price cap – the maximum annual tariff for gas and electricity – could drop to as low as £2,600 per year from July. It marks a £500 drop from the wealth manager’s previous forecast of £3,100 per year. 

At present, the Government’s Energy Price Guarantee is keeping bills for households with typical energy use capped at £2,500. But Chancellor Jeremy Hunt warned in the Autumn Statement that this will go up to £3,000 from April.

Charities and campaigners have warned that this could push millions more homes into fuel poverty amid an already crippling energy crisis that is forcing Britons across the country to choose between heating and eating this winter.

The rising bills were sparked largely by Russia’s war in Ukraine and President Vladimir Putin’s supply cuts to Europe, which sent wholesale gas and electricity prices spiralling out of control.

But for the first time since the invasion, UK gas prices have plunged to pre-war levels. During the first days of 2023, natural gas futures fell below 170p per therm – the typical unit of heat energy – down from over 500p in the immediate aftermath of Putin’s invasion and a high of above 650p in August.

Meanwhile in Europe, natural gas closed at a 15-month low on Wednesday at €64.30 (£56.55) per megawatt hour. It came after mild weather, an increase in liquified natural gas (LNG) imports and high gas storage levels appeared to please the markets.

Martin Young, an energy analyst at Investec, said the plunging price of natural gas explains the lower predictions for bills. But he warned that  families will still be forking out far more to pay their energy bills than in previous years. Prior to the Ukraine war, typical households paid no more than under an older price cap £1,277.

Mr Young told the Telegraph: “These are still going to be tough times, because you have still got a pretty serious cost of living crisis.”

Another forecaster, Cornwall Insight, has also predicted that bills will drop to £2,800 per year in July, below its earlier forecast of around £3,160. However, while gas prices have dropped, experts have explained that it won’t ease bills right away.

Professor Paul de Leeuw, an expert from the Energy Transition Institute at the Robert Gordon University, told “Typically utility companies buy gas and electricity for their customers months in advance and will lock in the price to reduce the risk.

“As such our monthly bills reflect the market price when the utility company acquired the energy rather than today’s prices. The current energy price cap is based on average prices over a six-month period, so for bills to go down, we do need to see the wholesale prices coming down in the short, medium and longer term (i.e. in the spot market and in the future market).”

Dr Anna Valero, a Senior Policy Fellow at the LSE’s Centre for Economic Performance, warned that bills in the UK are likely to stay high for the coming year, despite the drop in gas prices.

She told “My understanding is that the prices dropped due to lower demand (due to mild weather and demand management in EU countries) – but this is not expected to result in much cheaper energy bills for the foreseeable future as gas prices are expected to remain high over the coming year – the UK still relies on gas imports.

“Suppliers buy energy in advance, and Ofgem (the Government’s energy regulator) determines the cost of buying energy from the market by tracking wholesale prices ahead of the next price cap. The price cap is set to rise to £4,279 in Jan 2023, though the energy price guarantee (EPG) protects households (typical household bill not expected to exceed £2500 until April 2023). The next quarterly price cap update will be on 27 February 2023.”

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Meanwhile, Tony Jordan, of energy consultancy Auxilione, has warned that prices may even shoot back up after dropping. This is because demand for liquefied natural gas (LNG) from China could grow and boost prices, while cold snaps also threaten to send demand soaring.

He also warned that restocking European gas storage tanks without alternative supplies as the EU scrambles to wean itself off Russian gas could also prove to be an issue.

He told the Telegraph: “We’ve never had to live without Russian gas, we’ve never had to have such a big reliance on LNG.”

This comes after the UK officially “ended all imports of Russian Liquefied Natural Gas”. The Foreign Office announced in a Tweet: “Today the UK has ended all imports of Russian Liquefied Natural Gas. We’re cutting Putin off from funding his illegal war and supporting countries around the world to reduce their own dependency.”

The US has now become the mian supplier of LNG to the UK as well as to other European nations that once relied on Russian gas. While Britain only got four percent of its gas from Russia before the Ukraine invasion, the EU got a staggering 40 percent and was far more dependent.

But because the gas markets are integrated, the supply chain issues and cuts from Moscow had a huge knock-on impact on the UK too. According to According to the UK’s energy regulator Ofgem, wholesale gas prices make up the largest share of household energy bills, accounting for between 40 to 45 percent of the total.

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