Millions of homes face a winter energy bill hike of over £110 a year due to a surge in commodity market prices to almost 13-year highs, according to industry experts.
A standard gas and electricity bill is expected to climb to an average of £1,250 a year this winter after a “massive price hike” as global energy markets soar to prices not seen since 2008.
Energy market analysts have said that a gas demand surge in Asia and a long European winter has left reserves on the continent at record low levels, causing market prices for gas and electricity to rally to near 13-year highs in recent days and spelling higher energy bills for UK homes this winter too.
Martin Lewis, the founder of price comparison site Money Saving Expert, said that bill payers can expect “huge rises” on their energy bills, of up to £112 a year, from October.
“I have never seen the energy market like this before,” Lewis told the BBC. “Wholesale prices, which energy firms pay, have rocketed. The cheapest fixed deals are approximately £100 a year more now than they were just three months ago, and £200 a year more now than they were a year ago.”
The winter energy bill surge is more likely to take households by surprise this year because suppliers are unable to bring in incremental hikes to their standard tariff rates, to match the steady rise of market prices, until the regulator lifts the cap on energy bills.
Ofgem sets the maximum rate at which suppliers can charge homes using standard variable tariffs for their gas and electricity twice a year – in April and October – based on the costs faced by energy suppliers.
The regulator dismayed consumer groups by lifting the cap for the first time in two years earlier this year, despite many households face mounting financial difficulties because of the economic impact of Covid-19. The new price cap included a £23 charge to help energy companies claim back the cash they have missed because of unpaid bills during the pandemic.
For the coming winter the regulator is expected to lift its cap for the average dual-fuel energy bill from £1,138 a year to £1,250 a year, up by £112, due to the rising cost of buying gas and electricity from the wholesale energy markets, according to analysts at Cornwall Insight.
Lewis said “most of the country” will bear the brunt of the rising energy market prices because even smaller energy suppliers – which are typically able to charge lower rates for their tariff – have begun lifting their rates towards the regulated cap.
“We will see massive price hikes,” he said. “Millions face bill hikes and you need to prepare yourself,” he said.
A spokesperson for the regulator said rising energy market prices would “unfortunately” be “likely to feed through to the prices that consumers pay”.
“Our job in setting the energy price cap is to ensure that households pay a fair price for energy – and no more. We update the cap twice a year and when we next do so, we will ensure that only the fair costs of supplying electricity and gas are passed through to consumers,” the spokesperson said.
The looming winter energy price shock has been primarily driven by rising prices on the global energy markets, according to Craig Lowrey, a senior consultant at Cornwall Insight.
He said it “looks likely that we will see a substantial rise in the winter price cap” following “a considerable rise in wholesale energy costs, rising to some of the highest seen since the “beast from the east” in 2018”.
“Wholesale prices have been hit by a combination of factors,” he added. Lowrey said the rising global price of gas shipped on liquified natural gas tankers, and the higher cost of European carbon prices, would keep the UK’s energy prices high.
In addition, he said that Great Britain’s electricity system faces tighter power supplies this year compared with last winter due to “unforeseen and prolonged outages of several ageing fossil fuel and nuclear plants”.