Will my energy bills be higher this winter? Why some households face paying MORE despite price cap falling

With inflation, food prices and Ofgem’s price cap all falling in recent weeks, there is reason to believe there is light at the end of the cost of living crisis tunnel.

Utility bills have been a particular sore point for households, having skyrocketed in the wake of the pandemic and the subsequent invasion of Ukraine.

So Ofgem’s recent move to lower the price ceiling below £2,000 was met with cautious optimism.

At first glance it seems that households will pay less for their energy this winter.

But a closer look at the figures shows that customers could pay up to £100 more this year, and hundreds more than before the pandemic – especially those in smaller homes who consume less.

We look at why prices are still so high and what you can expect in the coming months.

Does a drop in Ofcom’s price cap mean I pay less for energy?

Ofgem introduced the energy price cap to control the costs of variable rate energy contracts by setting the maximum price suppliers can charge households per unit of energy.

It started surging during the pandemic but soared after the invasion of Ukraine, shooting up from £1,000 in October 2021 to £2,500 in October 2022.

It rose to £4,279 in January 2023, but this was softened by the government’s price guarantee which capped it at £2,500.

This meant that although bills were significantly higher than the previous year, they were lower than they should have been.

The introduction of the Energy Support Scheme, which saw £400 automatically deducted from energy bills between October 2022 and March 2023, also helped keep bills lower.

An analysis of figures from comparison website Uswitch shows that a low-consumption household – usually a flat or one-bedroom house – paid £203.65 for its gas and electricity between October and December 2021, if it was on a variable rate.

In 2022 they would have paid £418.31 for three months, but taking into account the £199 discount that softened the blow, they would have paid £219.31 – or just £15.66 more.

Households with low consumption will see the biggest increase in their bills this winter. Source: Uswitch

This year they will have to pay £300.02 between October and December, an increase of £80.71, or £26.90 more per month since last year and more than £100 more since before the pandemic.

An average household – usually a three-bedroom house – will pay £465.07 over the next three months, compared to £447.05 last year with the discount applied and again if they were on a variable rate.

Although it is only a slight increase over last year’s bill, households with average consumption will pay significantly more than before the pandemic.

In 2019, they paid £293.22 for their energy between October and December, which fell to £249.18 in 2020.

Households that use a lot of energy are the only cohort that will see their bills fall – from £734.02 to £673.22.

But they will still pay £100.13 more than in 2021 and £248.42 more than what they paid before the pandemic.

Additionally, many homes had cheaper fixed rates before 2021, so it’s likely they would have paid even less than the figures quoted.

When will the energy bill start to drop?

The energy support scheme helped protect households from the biggest increases in energy bills by offering a £199 rebate between October and December and a further £201 between January and March.

It meant that the bills did not reflect the price of wholesale gas, and so while Ofgem’s price cap is lower, it will depend on external factors affecting the price of gas.

So while wholesale prices may have fallen from last year’s record highs, price volatility could mean the pain isn’t likely to go away anytime soon.

In recent weeks, gas prices have started to rise due to industrial strikes in Australia.

The facilities, operated by Chevron, supplied about 7 percent of the world’s liquefied natural gas (LNG) last year.

However, there is also good news. Lower wholesale prices have led some suppliers to start offering fixed rates again after abolishing them at the height of the energy crisis.

They are likely to be more cautious in their pricing, so you are unlikely to get a bargain.

Natalie Mathie, energy expert at Uswitch.com, said: ‘It’s good news that energy prices have fallen between October and December.

‘However, low-consumption households may find their bills similar, or in some cases even higher, than last fall as we receive no government support this year.

‘Unfortunately, forecasts suggest that the price cap will rise again in January, the time of year when households use the most energy.

‘This yo-yo effect on energy bills is due to Ofgem’s price cap, which now changes every three months.

‘Only those with fixed rates have the certainty of knowing what they will pay for the full term of their deal, usually a year.’

We recently wrote about the rise in fixed costs, which will soon top £300 per year for the first time, which is an addition to your monthly bill.

Our bills may be high for the rest of the year, but what happens in 2024?

Normally there are higher wholesale prices in the first three months of the year.

Energy experts Cornwall Insight predict the price ceiling for an average household will rise by around 3.5 per cent to £1,996 in January.

Dr. Craig Lowrey, principal advisor at Cornwall Insight, said: ‘The energy price cap has been steadily falling over the past year, and while it is disappointing to see this trend stalling, this is not entirely unexpected given the movements in the wholesale market recently.

“Although the increase is small, it shows that we cannot simply assume that prices will continue to fall and eventually reach pre-pandemic levels.”

Prices are still well above pre-pandemic levels – something Cornwall Insight predicts will ‘remain that way for the rest of the decade’.

Lowrey said: ‘Our forecasts for 2024 show that prices will continue to languish well above pre-pandemic prices – something currently expected to continue for the remainder of the decade.’

Of course, this will all depend on external events and given the volatility of the energy market, bills can rise or fall.

Predicting energy prices years in advance means they are subject to change, but for now experts think households will pay more for their energy for some time to come.