New analysis from an independent energy consultancy group is warning that the price cap is set to rise to nearly £4,000 at the start of next year. Research by Auxilione suggests that the UK Government’s price cap, which sets bills for more than 20 million households across the country, could be increased further than previously predicted by Cornwall Insight and Investec.
The company said that between October and December the price cap is likely to be £3,488 per year for the average household on a standard tariff with typical usage. Energy bills are currently capped at £1,971, already a record high, but from January the price will soar by another £500, hitting £3,994.
Predictions for January are still uncertain as there are more than three months left until the price is decided, but October’s prediction is likely to be more accurate and is due to be announced by Ofgem in the next few weeks.
Auxilione’s forecast comes less than a day after analysts at Investec forecast that October’s price cap will be £3,523, with bills rising to £4,210 in January.
Gas prices rose after Russian state producer Gazprom claimed it was unable to take delivery of a turbine which is vital to running one of its main pipelines to Europe.
Gazprom has blamed reduced flows to Germany through the Nord Stream 1 pipeline on the need for repairs. The Siemens 073 turbine has been repaired in Canada, but is currently stranded in Germany due to the disputes.
The pipeline is currently running at just a fifth of its capacity.
Auxilione explained: “With just one of the six turbines currently in operation, this puts the current 20% flow rate at risk.
“Siemens Energy have said they will ship the turbine at a moment’s notice and provide a resident engineer to maintain it.”
The news adds to the nightmare scenario for households that the Bank of England set out on Thursday.
It expects Consumer Prices Index inflation - a measure of the cost of living - to reach 13.3% in October as energy bills increase. Around half of the inflation is directly due to the price of energy.
Earlier this week, Ofgem also announced it will review the price cap every quarter instead of every six months which means customers are likely to see significant bill increases every three months rather than half-yearly as the regulator warned they face a "very challenging winter ahead".
What is the energy price cap?
Ofgem is the independent regulator of the British energy market and is designed to ensure customers are protected as much as possible.
A key part of its role is to set a limit - the price cap - on what energy firms charge customers on default, or standard variable, tariffs.
Variable tariffs have previously been more expensive than fixed-rate deals and people are often on these tariffs if they have never switched suppliers, a fixed term has ended or their supplier has gone bust.
Some 23 million households have their domestic energy bill governed by the price cap.
There is also a separate price cap for customers on prepayment meters.
On a standard energy bill, the price cap governs the maximum standing charge and price per kWh of gas and electricity that your supplier can charge you.
How is it changing?
The price cap was introduced in 2019 and designed to change twice a year. It changes in April, to cover the summer months when people tend to use less energy, and again in October before an expected increase in usage.
The next change will be announced at the end of this month and take effect in October.
How is it calculated?
Ofgem bases the price cap on how much it would cost a typical energy supplier to provide energy for an average home.
It uses a raft of factors which impact upon energy bills in its calculations, as well as considering usage levels and market data across a given period.
Wholesale gas and electricity costs for suppliers and the network costs they have to pay, such as infrastructure, are key factors.
Ofgem also considers the operating costs and profit margin of suppliers.
In addition, environmental obligations and taxes can be considered as part of the price cap figures.
Why are energy prices increasing?
The recent surge in energy prices has been driven by wholesale prices, specifically the soaring cost of gas.
Gas prices on global markets have surged by as much as six-fold, having leapt higher before the invasion of Ukraine.
Last year, countries in Asia and Europe used significant amounts of gas stocks during a long winter which helped to drive up prices while the reopening of economies also sparked higher energy usage.
More recently, the invasion of Ukraine by Russia has led to a restriction of Russian gas which has in turn pushed prices higher.
In the UK, very little gas is sourced from Russia but this has not shielded suppliers from the pricing impact across the rest of Europe, which typically sourced around 40% of natural gas from Russia.
What can customers do if they are worried about their rising energy bills?
Ofgem suggests contacting your supplier as soon as you can if you are worried about paying your energy bills or are in debt to your supplier.
Suppliers must work with you to agree on a payment plan customers can afford under Ofgem rules.
People can ask for more time to pay, access to hardship funds and payment breaks or reductions under the potential options.
Some energy companies offer certain schemes, for example, if someone is making their home more energy-efficient or offering free boiler checks and upgrades.
Some people may also qualify for particular forms of help such as Winter Fuel Payments or the Warm Home Discount Scheme.
Some charities may be able to offer grants.
Ofgem has particularly urged consumers not to join the "Don't Pay" group, which asks people to add their names to a pledge to cancel their direct debits for gas and electricity from October 1 in protest against soaring costs.
The regulator has warned this will only result in higher costs for everyone and could lead to personal debt problems.
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