Warm winter may lower energy bills later this year

Household electricity bills could fall later this year, one forecast says, but households will still face higher prices in a few months.

A less generous government cap will increase a UK household’s typical gas and electricity bill from £2,500 a year to £3,000 a year in April.

But warm weather in Europe and high gas supplies have resulted in falling wholesale prices that suppliers are facing.

So a typical annual bill could fall to £2,800 in the summer, forecasters say.

Should energy consultancy Cornwall Insight’s prediction prove correct, the bill to be paid by 26 million households would again be determined by Ofgem’s price cap rather than the government guarantee.

That could mean lower-than-expected costs for government and ultimately taxpayers.

“We need to remain cautious as the government has essentially underwritten a volatile wholesale energy market – a market that is likely to remain unstable throughout the year,” said Craig Lowrey, principal adviser at Cornwall Insight.

“Even if energy prices remain at current levels – which is a big if – the cost to the government throughout the energy price guarantee period will still add to the national debt and will ultimately fall on consumers in the form of higher taxes.”

A large majority of UK households have a variable or standard tariff for gas and electricity. The price per unit of energy is capped in England, Wales and Scotland to a level deemed reasonable by energy regulator Ofgem. The upper limit is set every three months.

The huge costs faced by suppliers meant a household consuming a typical amount of gas and electricity would have been paying £4,279 a year as of early January.

So the government stepped in to help cover some of those costs for people across the UK. Its energy price guarantee means the typical household now pays £2,500 a year, rising to £3,000 a year in April.

That’s still a massive increase in the bills people were used to. In winter 2021/22 the typical annual bill was £1,277.

Additional living expenses primarily help the most vulnerable with these higher costs.

Although the bills are extremely high, the wholesale prices paid by suppliers – before resale to consumers – are beginning to fall.

The winter in Europe has been unusually warm so far, reaching record temperatures in some places. Many European countries had already filled their gas storage facilities.

If these lower wholesale prices continue, consumers could feel the benefits later in the year, Cornwall Insight predicts.

It suggests that the typical annual household bill could fall to £2,800 from July to September and then remain relatively flat at £2,835 between October and December.

This is far from guaranteed as a cold snap in the coming months and further global tensions could quickly push wholesale prices back up after Russia invaded Ukraine.

Domestic bills would still be far higher than they were before the pandemic and are unlikely to fall back to these levels for many years.

The cost of government support from the price guarantee is still estimated at a total of £37bn, according to Cornwall Insight.

Meanwhile, businesses are waiting for the government to say what it will do if a plan to fix its energy bills expires at the end of March.

Business groups expect government aid to be halved, although it’s possible heavy energy consumers will receive support near current levels.