Energy price cap: £17 cut for summer, but gas crisis set to cost households another £600 a year from this winter

Monday’s reduction in the price cap offers only small and temporary relief for households, saving the average household just £17 this summer compared to if prices had remained as they were in the spring, according to new analysis from the Energy and Climate Intelligence Unit (ECIU). [1]

The small size of the savings is due to the modest falls in prices coming in the three months when households use least energy: just 20% of their annual electricity consumption, and less than 10% of their annual gas consumption. [2] And prices this summer will still be around 40% higher than before the gas crisis.

Furthermore, analysts have warned that rising wholesale prices are set to push the price cap in October, with the latest figures issued on 28 June forecasting an increase of over £150 to £1,724. This would be 50% higher than the pre-crisis average of around £1,150 per year. [3]

With bills expected to remain at around that elevated level until October 2025, households could end up paying almost an extra £600 over the 12months from October, the fourth year of the ongoing gas crisis.

Overall, households will not be much better off than in the first three years of the gas crisis (running to this September), when they have paid almost £2,000, or an average of £650 a year more for energy. [4] By September 2025, the average household could have paid almost an extra £2,600 on energy bills during the ongoing gas crisis. With the Government also spending £1,400 per home earlier in the crisis, the total extra costs could approach £4,000 per home, and counting.

Dr Simon Cran-McGreehin, Head of Analysis at ECIU, said: “The UK’s high dependence on gas for electricity generation and heating has cost bill payers £2,000 so far during the gas crisis and the economy as a whole tens of billions of pounds. Common sense measures like investing in insulating the poorest homes, switching to electric heat pumps and fast-tracking British renewables will leave us less vulnerable to the whims of the international gas markets.

“North Sea gas output is declining so unless we make the switch we’ll be ever more dependent on foreign imports. The maths is clear, when it comes to energy independence, new drilling licences are a side show making a marginal difference compared to the immense quantity of homegrown energy that offshore wind and other renewables can generate.”

Households whose homes have worse than average energy efficiency are being hit even harder. Homes rated EPC E for gas and power will be costing around £2,060 over twelve months when prices rise again in October, which is £300 more than a typical home, and homes rated EPC F will be costing £2,250, which is almost £500 more than a typical home.

Upgrading an EPC E home with insulation and other energy efficiency measures to reach the government’s target of EPC C would reduce its bills by £440 a year under prices expected this coming winter. For an EPC F home, the saving would be £640.

Some households have been spending less than on energy during the gas crisis because the high prices mean that they can afford to buy less energy than they need, with potential implications for their health. [5] Government data shows that, even accounting for longer-term trends in falling demand due to energy efficiency measures, households used 15% less gas and 10% less electricity in 2022 than before the gas crisis. Data is currently available for only the first nine months of 2023, but that shows cuts of 13% and 18% in total household gas and electricity demand, respectively, compared to averages for the same periods in the three years immediately prior to the gas crisis. [6]

ENDS

Notes to Editors

1. ECIU analysis of price cap data from Ofgem, taking into account changes in standing charges for one quarter, and changes in unit rates multiplied by typical demand in Q3 of the year. Ofgem data can be found at: https://www.ofgem.gov.uk/energ...

2. Quarterly demand data from Energy Trends 4.1 and 4.2 (DESNZ, 2024): https://www.gov.uk/government/...

3. A previous version of this analysis was conducted on the basis of forecasts by Cornwall Insight, issued on 24 May 2024: https://www.cornwall-insight.c...

This updated analysis is based on a new forecasts by Cornwall Insight, issued on 28 June 2024: https://www.cornwall-insight.c... The £40 difference in price cap forecasts for Q4 2024 has little impact on the results; for example, the extra cost in the fourth year of the gas crisis is around £600 in both cases.

4. Energy costs per home have been £6,800 over the three years starting in Q4 2021, which is £3,400 above the total for the three years immediately prior to the gas crisis, i.e. costs have been double. Of this extra, in 2022 and 2023 the Government paid around £1,000 via the Energy Price Guarantee (price freeze) and £400 via the Energy Bill Support Scheme, taking an average household’s extra payments to £2,000, or over £650 per year (rounded to nearest £50.)

5. National Energy Action, 2024: https://www.nea.org.uk/energy-...

6. Quarterly demand data from Energy Trends 4.1 and 4.2 (DESNZ, 2024): https://www.gov.uk/government/...