Energy bills for most households in Britain could soar to a record £2,000 a year from April as unprecedented wholesale costs force the regulator to increase the price cap by more than 50 per cent, experts have warned.
Ministers are understood to be examining options to try to reduce the scale of the increase, which is being driven by a global shortage of gas supplies.
Wholesale gas and electricity prices across Europe have reached fresh highs in recent days as cold weather raised energy demand while low gas exports from Russia combined with low wind power generation and nuclear power plant shutdowns in France cut supply. UK gas prices rose by 8 per cent to close at an all-time high of 370.25p per therm last night, according to Icis, the price reporting agency — more than seven times higher than typical prices over the past decade.
More than two dozen UK energy companies have collapsed and the multibillion-pound costs arising from their failure are expected to be recouped via energy bills, compounding the pain of high wholesale costs.
Energy bills for 11 million households on standard tariffs and four million households with prepayment meters are limited by the government’s price cap, which was introduced in 2019 to protect customers from “rip-off” prices and is updated twice a year by Ofgem.
The regulator authorised suppliers to increase bills by 12 per cent from October, to £1,277 a year for a typical household on standard tariffs, and is due to announce in February how much the cap will rise in April.
Martin Young, an analyst at Investec, the investment bank, said: “With wholesale commodity prices remaining elevated, we suggest that the tariff cap could jump by 56 per cent reaching £2,000 [a year] for the summer 2022 period.”
He estimated that higher wholesale costs would account for £560 of the increase with £72 per household to reflect the cost of supplier failures. He warned that it would come as “a shock to many, with implications for discretionary spend, inflation and fuel poverty”.
The price cap is forcing suppliers to keep standard tariffs well below the prevailing cost of energy supplies and cheap fixed deals have disappeared from the market. At present Britain’s two biggest suppliers, British Gas and Eon, are offering fixed price tariffs priced at more than £2,500 a year.
Other respected analysts forecast record-breaking increases. Cornwall Insight predicted an increase to £1,925 a year from April. A report by Citizens Advice earlier this month predicted that bills could rise to £1,891.
Thomas Rodgers, European gas analyst at Icis, said wholesale gas prices were being driven up by “colder-than-average weather across the Continent draining already low stocks” in storage. Gas supplies from Russia have reduced and cargos of liquified natural gas are being diverted from Asia to Europe as traders scramble to secure supplies.
Most of Britain’s power stations burn gas to generate electricity and high gas prices have fed through to high electricity prices. Low wind power output has increased reliance on gas plants, which were generating about 62 per cent of UK electricity at one point yesterday.
Phil Hewitt, director of EnAppSys, an energy consultancy, said that electricity prices were high because of “a lack of wind and colder temperatures” and that prices for January and February were already trading at record levels.