Heating: Even though the price cap is much lower than last winter, consumers may struggle again with bills
As winter starts to bite, UK consumers may be starting to worry again about how much they will have to pay for their gas and electricity over the coming months.
Of course, energy isn’t the only rising cost in the current inflation-led economy, which has caused most households to see a decline in disposable income since last winter.
Three factors that will make up UK energy bills
Look at your latest bill and you will see a daily standing charge, which is also regulated by Ofgem. This charge differs depending on the type of fuel used, where people live and how they pay for their energy. The standing charge covers the costs to the energy companies of supplying gas and electricity and supporting various Government initiatives.
Last winter, the Government helped all households with a universal £400 payment under the Energy Support Bill.
That support package, along with other measures, launched in response to the rise in energy prices, cost the Government £78 billion in 2022-23 and 2023-24. So, it’s unsurprising that another payment hasn’t been promised this year.
As the think tank Resolution Foundation recently pointed out, this winter’s typical energy bill will be driven by three factors: the unit price for gas and electricity, the standing charge and the lower level of Government support.
We know what to expect from the latter two factors, so the unit charge is the only unknown. The way this will affect people's energy bill this winter will come down to changes in supply and demand that will influence where Ofgem sets the cap from January 1 next year.
How will international events affect UK bills?
In Europe, weather also impacts the availability of renewable energy. In the winter months, long spells of cold, gloomy weather with no wind drive up gas demand to compensate for the lack of renewable generation. The Germans call this time (dark wind lull or dark doldrums).
We also have to hope that France’s nuclear power stations stay online after a record number of outages last year. If not, heightened gas demand in continental Europe would mean the UK has to pay more to buy gas from Europe’s stores. Countries such as Germany have also been busy building LNG import terminals, boosting competition for LNG shipments.
Households should follow the same advice as last winter: the most affordable molecule of gas or electron of electricity is the one you don’t consume. Heed the responsible advice available on how to save energy and cut your bills because, although the price cap is much lower than last winter, energy could be even less affordable for many people this year.
This article was originally published by The Conversation.
Michael Bradshaw is Professor of Global Energy. He teaches Managing Sustainable Energy on the Executive MBA and the Executive MBA (London) as well as the Global Online MBA and the Global Online MBA (London).
Learn how to innovate with new technology in the four-day Executive Education course Business Impacts of Artificial Intelligence.
For more articles on Sustainability sign up to the Core Insights newsletter here.