October price cap sees gas burden on bills climb to £2,300

The wholesale cost of gas is adding £2,100 to bills compared to before the crisis, putting around £1,200 directly onto gas bills, and increase of 570% from the pre-crisis average. And the additional expense of running gas power stations has inflated the wholesale electricity cost on bills by around £900, an increase of around 480%. [1]

With the gas crisis having also led to the collapse of more than thirty energy companies, £2.7bn (or £100 per household) has also been added to bills. This doesn’t include the taxpayers’ bill of £1.9bn for Bulb Energy’s special administration. [2]. Changes in the price cap to manage disruption in the energy sector take this total to around £200, meaning that the gas crisis has added around £2,300 to the average bill compared to the pre-crisis average.

Policy costs added to bills (also known as ‘green levies’) will drop to 4% of bills come October, with renewables support accounting for less than 3%. [3]

Jess Ralston, Senior Analyst at ECIU said: “The government doesn’t have a serious plan for dealing with the gas crisis and without one, as the IFS has pointed out, the £15bn bills bailout for this winter may have to grow and be repeated next winter. The elephant in the room is the cost of gas and unless households are helped to use less by conserving heat with insulation, bills will remain high.

“The ECO insulation scheme has knocked £600 a year off the bills of millions of households even before this latest hike, but funding for it remains low. Shifting policy costs on to general taxation will provide only a little relief and more UK gas won’t drop the price as we’re part of an international market.”

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 and would take years. [4] 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. [5]

Levies that fund insulation for low-income households and that support early renewables projects are set to fall as Ofgem has amended the price cap rules so that customers will receive their share of payback from renewables that are set to pay back at least £1.3bn over 18months up to next spring via Contracts for Difference (CfDs). [6]

Recent Government auctions secured a further 11GW of wind and solar capacity at less than a tenth (10%) the current price of gas power generation. [7] 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, equivalent to £500 per household, in the event of a future gas crisis (at prices seen last winter, let alone under current even higher prices). Saving would be even larger if onshore wind and solar were deployed more fully. [8]