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Updates to this briefing

This briefing paper will no long be updated as frequently as it was. The next scheduled update is at the end of February 2023.

The latest data on wholesale gas and electricity prices, the Energy Price Guarantee, the price cap and prospects for changes to prices in the future are all included in the new briefing Gas and electricity prices under the Energy Price Guarantee and beyond.

Trends in prices up to 2021

Gas prices were stable or falling for much of the period from 2013 to 2020. They started to increase towards the end of 2021. The average bill for the year was £575 compared with almost £700 in 2014.

Electricity prices increased for much of the last decade. Average bills were £760 in 2021 compared to £450 in 2020, a 36% real increase.

Recent increases in the price cap

Wholesale energy prices increased rapidly from the second half of 2021 onwards. Many consumers were protected, at least initially, by the energy price cap. It was increased by 12% in October 2021, but rising wholesale prices led to a much larger increase of 54% in April 2022. Continued increases in wholesale prices led Ofgem to annouce a further planned increase of 80% to be introduced on 1 October 2022.

The April increase was equivalent to £700 more across a year for ‘typical’ levels of dual fuel consumption paid by direct debit. The October cap would have been an increase of almost £1,600. 

The rapid increase in prices in late 2021 led suppliers to withdraw cheaper fixed price tariffs. Currently around 26 million of 28 million households are on Standard Variable Tariffs (SVTs) which are controlled by the price cap/Energy Price Guarantee.

The monthly increases in both gas and electricity prices in April 2022 alone were by far the largest ever recorded on a series going back to 1988. The annual increases to October 2022 were also the largest ever recorded on a series going back to 1970.

The Energy Price Guarantee

On 8 September the then Prime Minister Liz Truss announced that a new Energy Price Guarantee (EPG) would instead be introduced from 1 October. This was set at £2,500 a year for typical levels of consumption and was initially planned to last two years.

After a change of Prime Minister and Chancellor the new Chancellor of the Exchequer announced on 17 October 2022 that the Energy Price Guarantee would now only last sixth months ending at the end of March 2023. The Government set up a review to design a new more targeted approach which costs the taxpayer less.

In the Autumn Statement 2022 the Chancellor announced that the EPG would last for a further year from April 2023, but would increase from this date from £2,500 to £3,000 for ‘typical’ annual consumption. This higher price level is planned to last to the end of March 2024.

The Energy Price Guarantee is lower than the levels the price cap would have increased to in Q4 2022 and Q1 2023. However, it will still mean average prices increase by 27% in October 2022 and a further 20% in April 2023.

Under the EPG the average annual gas and electricity bill for a direct debit customer with ‘typical’ levels of consumption is £2,500 from October 2022 to MArch 2023. This is 27% higher than the summer 2022 price cap and 96% higher than the winter  2021/22 price cap. Gas has increased by more over this period; up by 141% since winter 2021/22 compared to a 65% increase for electricity. The EPG caps unit costs and standing charges only, so a household using more than ‘typical’ levels of energy will face higher bills and vice versa.

Households will also receive the £400 Energy Bills Support Scheme (EBSS) payment which covers the period 1 October 2022 to 31 March 2023.

The Government has said that the Energy Price Guarantee will cost £25 billion in its first sixth months and a further £13 billion in 2023-24. The Energy Bills Support Scheme is expected to cost £12 billion in 2022-23.

The Energy Price Guarantee and the “£2,500 average bill” figure from October 2022

The EPG sets a cap on the daily standing charges and prices per unit of gas and electricity. These vary between regions. The EPG does not set a cap on anyone’s total energy bill. The Government uses ‘typical’ annual levels of consumption (2,900 kWh for electricity and 12,000 kWh for gas) to illustrate what the capped unit costs and standing charges would mean for an annual bill. Under the EPG this is £2,500 on average for a direct debit customer across Great Britain, but, as with the price cap, if a household uses more than typical levels they pay more than this, if they use less they pay less.

The EPG for a prepayment customer, again with the same ‘typical’ usage levels, is £2,559, and higher still at £2,715 for a standard credit customer (paying by quarterly bills).

The ‘typical’ levels of consumption are median values for Great Britain over the past few years. The median is the middle value if all individual values are sorted from largest to smallest. It is based on all domestic properties in the country, but there is a large difference in consumption between different types of properties and households. This means the overall median may not be a good guide to a ‘typical’ annual bill for many households. EPG annual bills for some different types of properties are set out below. These are based on median consumption for these dwellings in 2019:

  • Detached house with five or more bedrooms: £4,500
  • Three-bedroomed semi-detached property: £2,670
  • One-bedroomed flat: £1,440

These are still only ‘typical’ annual bills and there will be considerable variations in energy use within these categories depending on their levels of insulation, floorspace, where in the country they are etc.

The unit cost and daily standing charge figures used by the Government to produce the £2,500 figure are averages for Great Britain. The caps are different in each energy supply region. Using the same ‘typical’ annual consumption levels for each region gives annual bills for direct debit customers which vary from around £2,450 in the Northern and East Midlands regions to £2,566 in the North Wales & Mersey region.

All these annual bill figures exclude the £400 Energy Bills Support Scheme which will be paid through cuts in bills between October 2022 and March 2023. This is a flat rate payment which goes to all households regardless of their energy use. It therefore means a larger percentage cut in bills for customers who use relatively small amounts of energy and vice versa.

The EPG for typical levels of consumption for direct debit customers will incraese to £3,000 for the whole of financial year 2023-24. The Government has not published any details of how this will vary by payment method or region.

Variations in prices

Customers who pay by direct debit have traditionally been offered the cheapest tariffs. The gap between payment methods has fallen over time, especially after 2017 when a price cap on prepayment meters was introduced.

There is relatively little difference in energy prices across Great Britain. Combined gas and electricity bills for typical levels of consumption varied in 2022 from around £2,324 in North Wales & Merseyside & North. The Energy Price Guarantee unit costs and standing charges vary by region. The annual totals under the scheme before the April 2023 increase, for typical levels of consumption, vary from £2,434 in the Northern energy supply region to £2,579 in North Wales & Merseyside.

Over much of the last decade smaller energy suppliers have tended to offer cheaper tariffs than the standard variable tariffs (SVTs) offered by large established companies. Wholesale price rises from summer 2021 have meant that most of these cheaper offers have been withdrawn.

In the first half of 2022 UK domestic gas prices were below those in most of the EU, while UK electricity prices were higher than all but three EU countries. UK consumer prices for gas and electricity increased by substantially more than the EU average increase in the first half of 2022.

Customers not covered by the cap or Energy Price Guarantee

There is no price cap on non-domestic energy so increases in business energy bills could be larger still, affecting the economic viability of some and feeding through to higher consumer prices in general. The Government announcement on the Energy Price Guarantee said that there would be “equivalent support” for businesses and other non-domestic consumers.

On 21 September it announced that households not on the gas grid and using heating oil or other fuels would receive a payment of £100. This was increased to £200 in the Autumn Statement. The Government has also said that there would be equivalent support for households not on standard gas/electricity contracts such as those living in park homes or on heat networks. The Government also released details of its support for non‑domestic consumers, the Energy Bill Relief Scheme, on 21 September.

Households in Northern Ireland were not protected by the price cap or Energy Price Guarantee. The Government announced its plans for support for households in Northern Ireland on 21 September. This includes support equivalent to the Energy Price Guarantee which will be introduced in November bills and backdated to October. There will also be a £600 payment to all households in Northern Ireland to help with energy bills in winter 2022/23. This is made up of the £400 Energy Bills Support Scheme plus the £200 Alternative Fuel Payment.

Crude oil prices jumped when Russia launched its full-scale invasion of Ukraine on 24 February 2022 and continued to increase through early March. These increases quickly fed through to heating oil prices.

Average monthly heating oil prices increased from just over 20 pence a litre at the start of the first lockdown to 99 pence a litre in mid-June 2022, before falling back somewhat later in the summer.

Daily average heating oil prices increased from 67 pence per litre just before the invasion to 81 pence per litre at the end of February, reaching a peak of 160 pence per litre on 10 March. Prices fell quickly to around 100 pence per litre and remained close to this level for most of the summer.

What support is the Government offering households?

Help with energy bills

The following links give details of the support available from government and other organisations for customers who are struggling to pay their bills:

In February 2022 the Government announced a package of support to help households with rising energy bills,

The package includes a £200 upfront discount on bills in October 2022 (paid for by customers in £40 instalments over the following five years), a £150 Council Tax rebate for around 80% of households in England, £144 million in discretionary funding for local authorities and £715 million for the devolved administrations.

On 26 May 2022, when the October cap was forecast to be around £2,800, the Chancellor announced a further package of measures intended to help with the cost of living, including higher energy bills, in 2022‑23. This included:

  • Doubling the upfront discount on bills to £400 for all households and scrapping the requirement for it to be repaid.
  • A £650 one-off payment to around 8million households on certain means tested benefits
  • A £150 one-off disability cost of living payment for people who receive certain disability benefits
  • A one-off £300 payment for over 8million pensioner households
  • An additional £500 million of local support through the Household Support Fund.

Households can receive multiple elements of this package if they are eligible. The total value of this additional support in 2022-23 is £15.3 billion. The gross cost is £21.3 billion as it converts £6.0 billion of earlier support from a loan to a grant.

This extra spending will be partly supported by a new windfall tax, the Energy Profits Levy, which the Government expects to raise £5 billion in its first year. The briefing Energy Bills Support Scheme: Government policy and FAQs gives more details.

On 8 September the Prime Minister announced that a new Energy Price Guarantee would replace the price cap. It was originally planned to last for two years, but this was later reduced to sixth months. Its level is £2,500 for typical annual consumption levels. This is over £1,000 less than the original Q4 2022 cap. Households are still eligible for the support announced in the February and May 2022 support packages.

In the Autumn Statement 2022 the Chancellor announced that from April 2023 bills under the EPG would increase from £2,500 to £3,000 for ‘typical’ annual consumption. This higher price level is planned to last to the end of March 2024. It is expected to save the Government £14 billion compared to keeping the EPG at £2,500 for the whole of 2023-24.

At the same time as this change to the EPG the Chancellor also announced:

  • A doubling of the Alternative Fuel Payment for households not on mains gas from £100 to £200 this winter.
  • A new Energy Efficiency Taskforce with the aim of cutting energy consumption from buildings and industry by 15% by 2030.
  • New funding for energy efficiency of £6 billion between 2025 and 2028.
  • New cost of living payments for people on disability benefits, households on means-tested benefits and pensioner households.

At the Autumn Statement the Chancellor announced an extension of the Energy Profits Levy to 2028 and an increase in its rate from 25% to 35%. It is now expected to raise £42 billion up to 2028. He also announced a new Electricity Generator Levy. This will be charged at 45% on “extraordinary profits” from electricity sold at prices above £75/MWh. 

The latest forecasts of what the price cap for ‘typical’ consumption would be (without any Government support) are around £3,500 in Q2 2023, falling to around £2,800 in Q3 and Q4 2023.

Why have energy prices increased?

Prior to Russia’s full-scale invasion of Ukraine in February 2022 there was an increase in demand for oil and gas as economies around the world came out of lockdown. Supply did not keep pace with the higher demand for various reasons. Increased gas prices fed through to increased electricity prices.

The Russian invasion of Ukraine in 2022 caused oil and gas prices to jump due to concerns about disruption to supply. Sanctions on Russia, the embargo on Russian oil, a potential embargo on Russian gas and cuts in Russian gas supply to Europe have pushed oil and gas prices up further still. The price of electricity produced form gas has increased in line with gas prices and effectively sets the price for all power on wholesale markets. Lower electricity production in some sectors have also helped to push up power prices. Drought in parts of Europe have led to lower hydroelectric output and a large number of French Nuclear reactors were offline in late summer.

Wholesale gas and electricity prices on the spot market fell in autumn 2022 to levels below those at the start of the year. There was a spike in prices during the early December, but prices have fallen back again. If these lower prices continue they will cut the cost of the Energy Price Guarantee to Government, but are not expected to feed through to lower consumer bills until late 2023.

How will price rises affect lower income households?

Spending on energy varies less by income than any other spending category. This means lower income households have to spend a much larger share of their family budgets on energy than higher income groups. Recent sharp increases in energy prices will have a disproportionate impact on lower income households.

The April 2022 price cap and Energy Price Guarantee level from October suggest that it would cost the poorest 20% of households an additional £1,000-1,100, and pensioner households around an additional £1,400, to use as much energy in financial year 2022-23 as they did in 2020‑21. This is before the extra support the Government has announced is taken into account.

Components of a typical energy bill

The October to December 2022 price cap (now superseded by the Energy Price Guarantee) consisted of:

  • 70% wholesale costs of energy
  • 10% network costs
  • 5% operating costs
  • 4% policy costs (levies to support low carbon generation, energy efficiency and vulnerable customers)
  • 5% VAT
  • 2% assumed suppliers (profit) margin
  • 4% other costs

 

Further information

Readers may be interested in the following related briefing papers from the House of Commons Library:

The following pages include the most useful official data on energy prices:


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