Wholesale energy prices increased rapidly in the second half of 2021. Many consumers were protected, at least initially, by the energy price cap. However, the price cap increased by more than 50% in April 2022. There were further large jumps in wholesale prices after Russia invaded Ukraine.

Households in Northern Ireland and those who do not use gas or electricity to heat their homes are not protected by the price cap. Prices of heating oil have more than doubled in recent weeks.

Many observers predict that the price cap will increase further in October 2022, forecast increases vary from 30-50%. The price increases that consumers have already faced have led to concerns about the impact on vulnerable households, particularly those in fuel poverty, who might not be able to heat their homes properly.

There is no price cap on non-domestic energy so increases in business energy bills will feed through to higher consumer prices in general. There are also likely to be wider negative impacts on the economy, particularly if prices continue to increase.

This paper looks at data on trends and variations in domestic energy prices and the prospects for prices in the near future.

Trends in prices up to 2021

Gas prices were stable or falling for much of the period from 2013 to 2020. They increased 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.

Average heating oil prices increased from just over 20 pence a litre at the start of the first lockdown to almost 60 pence a litre in mid-October 2021.

Prices in 2022 and beyond

The energy price cap increased by 12% in October 2021 and 54% in April 2022.

The April increase is equivalent to £700 for ‘typical’ levels of dual fuel consumption paid by direct debit. In February 2022 the Government announced a package of support to help households with rising energy bills, including 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.

Higher wholesale prices, especially after Russia invaded Ukraine, have led some to speculate that the cap could increase by a further 30-50% in October 2022.

Crude oil prices jumped when Russia invaded Ukraine and continued to increase through early March. These increases quickly fed through to heating oil prices. Daily data show that average UK prices increased from 67 pence per litre just before the invasion to 81 pence per litre at the end of February and a peak of 160 pence per litre on 10 March. Since then prices have fallen back somewhat, and were around 110 pence per litre on 20 March.

Causes of price increases

Prior to the Ukraine crisis there was an increase in demand for oil and gas as economies around the world came out of lockdown. Supply did not generally keep pace with the higher demand for various reasons. Increased gas prices fed through to increased electricity prices.

The Russian invasion of Ukraine caused oil and gas prices to jump due to concerns about disruption to supply. Sanctions on Russia and the potential for an embargo on Russian oil and gas have pushed oil and gas prices up further still.

Impact of price rises on 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 rise and expected increase in October 2022 suggest that it would cost the poorest 20% of households an additional £850-950 to use as much energy in 2022-23 as they did in 2019-20. This is after the extra support the Government has announced so far is taken into account.

Components of a typical energy bill

The Summer 2022 price cap, introduced on 1 April, consists of:

  • 54% wholesale costs of energy
  • 19% network costs
  • 10% operating costs
  • 8% policy costs (levies to support low carbon generation, energy efficiency and vulnerable customers)
  • 5% VAT
  • 2% assumed suppliers (profit) margin
  • 2% other costs

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 the country. Combined gas and electricity bills for typical levels of consumption varied in 2021 from around £1,280in the East Midlands to £1,360 in Merseyside and North Wales.

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 has meant that most of these cheaper offers have been withdrawn.

In the first half of 2021 UK domestic gas prices were below those in most of the EU, while UK electricity prices were higher than in most of the EU.

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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