Gas set to have added £2,000 to bills when price cap rises again this winter

Wholesale gas costs are set to have added around £1,200 to gas bills, an increase of over 500% from before the crisis. And the knock-on effect into the power market means that gas will have pushed up electricity wholesale costs on bills by over £700 a year, an almost 400% increase. [1]

In addition to over £1,900 of extra costs directly caused by wholesale gas prices, the gas crisis is responsible for adding around a further £100 to bills to deal with the £2.7bn collapse of over thirty energy suppliers that were overwhelmed by the rising prices (not including the taxpayers’ bill of £1.9bn for Bulb Energy’s special administration). [2]

Dr Simon Cran-McGreehin, Head of Analysis at ECIU said: “With the gas price so high and volatile, and set to remain so, the question is: where’s the plan? As the IFS has already pointed out, a £17bn winter bailout for bills isn’t sustainable for years to come. The very obvious answer is to help people to use less gas, but the government has had itself in a muddle over energy efficiency.

“The ECO insulation scheme has worked well and is knocking £600 off the bills of fuel poor households, but government is non-committal on doing more. We have to consider security of supply too, but more UK gas won’t come online anytime soon, won’t bring down bills and for many will have the whiff of ‘let them eat cake’ about it.”

Previous ECIU analysis has shown that deploying heat pumps and insulation is the fastest and most effective way to permanently reduce gas demand, gas imports and heating bills – as opposed to drilling for more UK gas which would not cut demand or the price. [3] ECIU analysis has also found that energy efficiency schemes such as ECO have contributed to savings of £1.2bn per year under current prices, which will rise further under higher winter prices. [4]

Over 90% of the rises in energy bills will have been due to the impacts of gas wholesale costs. VAT at 5% would add just over £100 compared to the average pre-crisis levels. Network costs are not set to rise further, and changes during the crisis to-date have been dominated by recovery of costs for supplier collapses, as opposed to the actual operation of networks.

Levies that fund insulation for low-income households and that support early renewables projects are set to remain stable into the winter at around £155. Furthermore, new renewables are set to pay back £1.3bn up to next spring via Contracts for Difference (CfDs). [5] Recent Government auctions secured a further 11GW of wind and solar capacity at a quarter of the price of gas power generation. [6] This includes 7GW of offshore wind at record low prices of £45/MWh (in 2021 prices – cheaper than even the pre-crisis price of gas generation) that will take the UK more than halfway to its target of 50GW by 2030. Hitting that target would take savings to £34bn per year in the event of a future gas crisis, equivalent to £500 per household, and savings would be even larger if onshore wind and solar were deployed more fully. [7]

This week, Ofgem’s CEO, Jonathan Brearley, told MPs that Ofgem expects the cap for October to December to rise by more than the £800 (to reach £2,800) previously predicted. [8] This acknowledgment came just days after industry experts had raised their forecast to £3,300 a year, from £3,000 just a few weeks previously. [9]