Households will face the steepest summer rise in energy charges in four years after months of soaring market prices caused the government’s energy price cap for Great Britain to climb by 13%.
Under the cap the average gas and electricity bill will increase to the equivalent of £1,862 a year from July until the end of September to take account of the rise in global energy market prices caused by the war on Iran, up from £1,641 a year in April to June.
The energy secretary, Ed Miliband, said it was essential to de-escalate the conflict in the Middle East to bring oil and gas prices down.
“The rise in the price cap because of a war we did not choose is deeply unwelcome news for households across the country.
“The way to get bills down for good and avoid these price spikes is to go further and faster with this government’s drive for clean homegrown power we control,” Miliband added.
The energy regulator for Great Britain, Ofgem, determines the maximum a supplier can charge for each unit of gas and electricity based on the cost of supplying energy to homes, including the average wholesale market costs in the months leading up to the start of each new cap. The cap also incorporates the maximum daily standing charge (the flat daily fees levied for a connection regardless of how much or little energy people use).
Under the new energy price cap, households that pay via direct debit will see electricity charges rise from the current rate of 24.67p per kilowatt hour to 26.11p per kWh, while gas charges will rise from 5.74p per kWh to 7.33p per kWh.
The war in Iran has caused the biggest energy supply shock on record by choking exports of oil and gas from the Gulf. In Europe, gas prices have more than doubled from pre-crisis levels, and are about three times higher than before Russian gas exports to Europe halted after its invasion of Ukraine.
Tim Jarvis, Ofgem’s interim chief executive, said the rise in the cap was “almost entirely driven” by the rise in global gas prices on the back of the Middle East conflict.
“We have seen wholesale prices increase. They have been very volatile but they have been broadly much higher than they would normally be at this time of year, and that is what is filtering through now into the adjustment to the price cap,” Jarvis told BBC Radio 4’s Today Programme.
For motorists, the crisis has already caused petrol to rise by almost 20% at the pump to an average of 159.43p a litre on Tuesday, according to the RAC, while the diesel price has increased by more than 30% to 184.96p a litre.
While the rising cost of energy is expected to be painful for households this summer, the bigger concern is bills from October, when households typically start using more energy in autumn and can expect higher bills as a result.
Jarvis said the next quarterly change to the cap, due in October, would depend to a large extent on what happens in the Middle East, progress towards a peace deal, the speed with which the strait of Hormuz reopens and how quickly the market recovers.
“It is unfortunately now looking like a more long-term disruption to markets than we might originally have hoped,” he added.
Rising bills are expected to compound the record levels of energy debt amassed by households since Russia’s invasion of Ukraine ignited a gas supply crisis for Europe.
Jarvis said that people now have an opportunity to prepare for what may be coming in the winter, possibly by fixing their energy bills. That would protect customers if the cap rose again, at the risk of missing out on savings if prices fell.
“You’ve obviously got the risk there that if prices do come down but it is likely that we are going to see elevated prices this winter. We’re not at the moment seeing the sort of price rises that we saw following the Russia-Ukraine war, but it remains a very uncertain situation,” he said.
Unpaid energy bills reached a record high of £4.5bn earlier this year, according to the latest official data. These debts are partly paid down by other bill payers through an annual £52 charge included in the energy price cap.
