Energy price cap: Cost of gas crisis set to approach £4,000 for a typical household

Homes with the lowest level of energy efficiency, such as those with little insulation, will spend around £630 a year more on energy bills than efficient ones from October.

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By George Smeeton

info@eciu.net

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As the UK approaches the fourth year of the gas crisis, which began in September 2021 before the Russian invasion of Ukraine, international prices remain volatile, meaning that prices are estimated to rise again in 2025, such that a typical household will pay £600 more over 12 months than before the gas crisis. This could result in extra household energy costs of around £4,000 in total over the four years of the crisis compared to four years before the gas crisis, with the Government paying £1,400 of this via the Energy Price Guarantee. [1]

However, households living in homes with worse than average energy efficiency have been facing even higher costs. Under Ofgem’s price cap from 1 October 2024, gas bills in homes with poor insulation, rated band F on the Energy Performance Certificate (EPC) scale, will be on average around £330 (around 50% more) worse off a year more than homes at the Government’s target for home energy efficiency of EPC band C, new analysis from the Energy and Climate Intelligence Unit (ECIU) has found. [2]

With the gas crisis also inflating power prices, when gas and electricity are taken together, the worst rated homes will cost around £630 (around 40%) more than EPC band C homes.

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Whilst households living with the worst energy efficiency are facing the highest bills, even those in a more typical home, EPC band D, are facing overall bills of around £230 (15%) more than if they had been upgraded to the Government’s target of band C.

Jess Ralston, Energy Analyst at ECIU, said: “Unfortunately, more volatility in the international gas markets means that we’re not out of the woods yet, with bills expected to rise again in the new year. Many households have little resilience left to bear the brunt of further bill increases, so ensuring that they’re shielded from future price spikes will surely be a priority for the new Government.

“It's already taken positive steps with renewables, such as upping the budget for the current auction round, which will help in the longer term but fixing up the stalling insulation schemes is a no-brainer action that could see bills lowered in the immediate term. And it remains to be seen whether there will be further support added for vulnerable pensioners who will now miss out on the Winter Fuel Payment.”

Some households have been using less energy during the gas crisis than would be normal for their home’s EPC band, because the high prices mean that they can afford to buy less energy than they need. Government data shows that household demand has been supressed over recent years: electricity demand was around 10% lower in 2022 and 13% lower in 2023, with gas demand around 15% and 20% lower in the same years, respectively. [3]

At times over the last decade, insulation rates have been 95% lower than their peak of 2.3 million measures per year in 2012, coinciding with then Prime Minister David Cameron deciding to “cut the green crap”. In 2023 just 295,000 energy efficiency measures were installed across multiple government programmes [4] which is around 85% lower than in 2012.

However, there are recent signs of recovery, for example with the Great British Insulation Scheme reaching its peak level of energy efficiency installations in June 2024 after a short period of near-exponential growth. Although, it should be noted that this is still significantly below the target levels for the scheme. [5]

ENDS

Notes to editors

  1. Using data from Ofgem’s price cap model, 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 a typical household’s extra payments to £2,000 over three years, or over £650 per year on average (rounded to nearest £50.)  The extra £600 on bills projected for the fourth year of the gas crisis takes the total to £4,000 over four years, of which the household will have paid £2,600.
  2. ECIU analysis uses prices under Ofgem’s price cap for Q4 2024, and Cornwall Insight’s estimates for Q1 2025 extended out to Q3 2025 (in the expectation that prices will be similar for much of 2025), and applying these prices to a whole year’s demand at Typical Domestic Consumption Values (TDCV) and for median demand at different EPC bands.
  3. Total UK household demand for gas and electricity are taken from Energy Trends 4.1 and 5.2, respectively, and values for 2022 and 2023 are compared with the averages for the three years 2019 to 2021. (DESNZ, 2024)
  4. The total number of measures installed under the Energy Company Obligation, Great British Insulation Scheme and Social Housing Decarbonisation Fund. Data found in Household Energy Efficiency Statistics, February 2024; Great British Insulation Scheme Statistics, February 2024; and Social Housing Decarbonisation Scheme Statistics, February 2024.
  5. Great British Insulation Scheme Statistics, August 2024.

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George Smeeton, Head of Communications

Tel: 07894 571 153, Email: george.smeeton@eciu.net