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Manchester Evening News
Manchester Evening News
Business
Neil Shaw & Kieran Isgin

Energy bills could rise by £500 despite price cap being brought down

Analysts believe that energy bills could rise by as much as £500 a year on average regardless of an expected reduction in Ofgem's price cap.

On Monday, February 27, the energy regulator is expected to announce a drop in the cap on the amount energy suppliers are able to charge by roughly £1,000 from April 1, according to the latest forecasts from energy consultancy Cornwall Insight. The energy price cap is used by suppliers to let them know what maximum they can charge customers for each kilowatt hour (kWh) of energy they use.

The price cap is based on the amount an average household would pay for an annual bill, but households may spend more or less on their energy bills depending on how much they use.

READ MORE: Public sector workers could see pay rise of just 3.5 per cent next year

However, customers will pay about 20 per cent more on their bills – approximately £500 – as the government’s additional support in the form of the Energy Price Guarantee (EPG) only partially protects consumers from paying the full price cap.

The EPG limits customer charges to 34p per kWh for electricity and 10.3p per kWh for gas - equating to £2,500 a year for the average household. The government then picks up the difference between Ofgem's price cap and the EPG.

Meanwhile, energy bill costs will also be hit by the end of the £400 energy rebate scheme which provided a £400 discount split into six instalments. Currently, Ofgem's price cap is set at £4,279 a year for the average household, with the government paying around £1,779 a year to energy suppliers for the average household between September and March.

However, the predicted drop in Ofgem's price cap to £3,295 and the rise of the EPG to £3,000 means the government will only end up paying around £295 per household a year from April to June. According to Cornwall Insight, the cap may fall further in July to £2,153 before rising slightly to £2,161 in October.

Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “Regrettably, the forecast for April looks set to leave the price cap above the increased Energy Price Guarantee level, meaning average annual consumer bills will effectively jump by 20 per cent (£500).

“However, this is before we take into account the end of the £400 energy rebate scheme in March, meaning that the cost of energy for households will increase by even more. While tumbling cap projections are a positive, unfortunately already-stretched households will be seeing little benefit before July.

“While prices under the cap remain considerably higher than historic norms, the combination of falling wholesale prices and an increase in the EPG could see the return of competitive tariffs, and with it the chance for consumers to take back some control over their energy bills.”

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