Bills to Remain High Until 2030s
Even though the Ofgem price cap will be lowered from the beginning of July, experts expect energy bills to not drop below £1,700 for the rest of the 2020s. Wholesale energy prices have fallen, but many believe that this will not translate into households paying less for many years to come.
From 1st July, the price cap will be £2,074. Although this is down from the previous £3,280 April price cap, the Energy Price Guarantee made this £2,500. In real terms, the cost per unit of energy has only dropped by a couple of pence, not being as low as it was before the price of energy began to soar at the end of last year. The average household on direct debit will now pay 30p/kWh for electricity from July (down from 32p) and 8p/kWh for gas (down from 10p).
According to the Energy and Climate Intelligence Unit (ECIU), bills are not likely to fall below their current levels because of the high levels of gas demand. The government advisory body has stated that households would end up paying £600 a year more than before the energy crisis began. Thanks to the war in Ukraine, demand has soared along with prices as Russian oil and gas has been shunned by most of the world.
“Whilst the falling price cap is a relief for households, this gas crisis will linger, with wholesale price forecasts suggesting that the average household energy bill might not get below £1,700 a year for the rest of this decade.”
Dr Simon Cran-McGreehin – ECIU
Dr Cran-McGreehin highlights the need for home insulation, heat pumps and an ever-increasing array of renewable technology to offset the demand for gas. A cultural shift will be needed to decrease the ingrained need for natural gas, which is susceptible to price hikes worldwide. Renewable electricity offers cheaper bills, and home heating can be achieved more cheaply with efficiency systems that work with well insulated homes.
Ofgem has echoed the findings of the ECIU, saying that pre-crisis levels with energy bills will not be seen any time soon. Wholesale gas prices are predicted to settle at around 2½–3 times their current levels, while electricity will be 2–2½ times higher for the rest of the 2020s.
The cultural root of gas use means households pay a premium to overseas suppliers. The ECIU estimates this to be £500 a year, which will only worsen if gas dependence isn’t eased. On average, £5,700 of gas produced overseas will be used throughout the next 12 years for a typical house with a gas boiler and average electricity use. The ECIU estimate puts this at £500 in 2035, £140 of which would be sent to overseas producers.
A more modern home, by contrast, with a good amount of insulation, a heat pump and solar panels would only use £10 of gas by 2035. Of that £10, £1 would be spent on foreign gas. The argument here, Dr Cran-McGreehin adds, is that those against heat pumps wish to see more gas dependence, and higher bills as a result. Households are already suffering from high standing charges, paying around £300 a year before seeing a single unit of energy. Without the Energy Bills Support Scheme, which offered £400, homes will start to struggle.