Energy bills to hit £500 a month in January amid new price cap fears

By Claire Schofield
Thursday, 28th July 2022, 9:06 am
Updated Thursday, 28th July 2022, 9:49 am
The average UK household could see their energy bill rise to £500 in January (Photo: Adobe)
The average UK household could see their energy bill rise to £500 in January (Photo: Adobe)

The average UK household could see their energy bill rise to £500 in January alone, experts have warned.

BFY Group, a utilities consultancy, said it expects the price cap on bills to hit £3,850 between January and April next year, which is hundreds of pounds more than previous predictions.

The latest forecast comes after the Kremlin further strangled the flow of gas to Europe. The UK gets very little of its gas directly from Russia, but the price paid here is determined by what happens across the Continent.

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    Dr Gemma Berwick, a senior consultant at BFY Group, said: “Following further rises in wholesale prices as flows of gas from Russia to Europe via the Nord Stream 1 pipeline drop to 20% of capacity, we now forecast the Ofgem price cap to rise to £3,420 in the fourth quarter of 2022 and £3,850 in the first quarter of 2023.

    “This will make the average household bill over £500 for January alone.”

    If the predictions are correct it will add further pressure to already squeezed households and would be a near-doubling of today’s record price cap, which is currently set at £1,971.

    Cornwall Insight, another consultancy, had predicted a £3,364 January price cap just three weeks ago but circumstances have changed significantly since then.

    BFY now believes Ofgem will have to set the earlier October price cap change at £3,420 - a considerably higher sum than the £2,800 originally predicted by Ofgem in May - with another increase expected when the cap is reviewed in January.

    The cap used to be updated twice a year, but recent changes mean a new price cap will be set every three months. The cap is based on the average cost of energy in the previous months.

    Analysts say the picture could change by January, but they already have most of the data needed to accurately predict October's rise.

    The worsening forecasts, and fears that the market is still rising, will put further pressure on the government to support the most vulnerable households through the energy crisis.

    Ministers were forced to act in May by announcing a major package of support for households, but at that point the prediction for October’s price cap was just £2,800 – more than £600 lower than the latest forecast.

    Electricity supply could be ‘tight’ this winter

    The gloomy price cap forecast comes amid warnings the UK’s electricity supply might be tight during the winter.

    The Electricity System Operator (ESO), the body tasked with balancing the grid, said margins might narrow significantly towards the end of the year, but it believes it should be able to keep the lights on.

    In a report, it said: “Our operational modelling indicates that there could be some tight periods this winter, which are most likely to occur in the first half of December.”

    The grid needs to make sure it has enough electricity generators ready to go when demand for electricity peaks, meaning it needs to maintain a margin above the forecasted demand to deal with any short spikes.

    If the margin falls below certain levels the ESO will send out a so-called Electricity Margin Notice (EMN) which lets generators know that more electricity is needed.

    The ESO said it might need to use the EMNs this winter to ensure supply is stable.

    In the report it notes that Britain is not as reliant on Russian gas as other countries in Europe, but “it is clear that the cessation of flows of gas into Europe could have knock-on impacts, including very high prices”.

    The ESO has worked with the government to ensure that four coal power stations are still ready to use if they need to be called on this winter, and they are working on a fifth.

    It is also “exploring options” to incentivise energy users to reduce their use during peak times.

    The ESO said that Britain should be able to keep the lights on during the winter, but it is likely to be a troublesome period.

    Currently the Nord Stream 1 pipeline that brings Russian gas to Europe is only running at 20% of its maximum capacity, sparking concerns about whether there will be enough gas to go around this winter. Much of the UK’s electricity comes from gas, so any serious hit to gas supplies could impact the availability of electricity.

    The Department for Business, Energy and Industrial Strategy said: “As this report shows, the UK’s secure and diverse energy supplies will ensure households, businesses and industry can be confident they can get the electricity and gas they need.

    “Britain is in a fortunate position, having access to our own North Sea gas reserves, imports from reliable partners like Norway, the second largest LNG (liquid natural gas) port infrastructure in Europe, and a gas supply underpinned by robust legal contracts.