UK household electricity bills are likely to be lower after warm weather

UK household electricity bills are projected to be lower in 2023 than previously expected, falling below the government price guarantee level in the second half of the year.

Analysts have slashed their estimates for domestic energy bills after unseasonably warm weather across Europe in recent weeks prompted it lower gas consumption On the continent.

Investec Bank’s Martin Young, who has been shown to accurately predict the level of the price cap that dictates energy bills for the majority of UK households, said he expected the cap to drop to around £3,460 a year in April, based on typical usage. in July to £2,640 a year and in October to just over £2,700.

The price cap, which is revised every three months by energy regulator Ofgem, currently averages £4,279 per year. However, consumers have been partially shielded by the government’s subsidy program, which caps the per-unit price that utilities can charge customers.

The government program aims to cap a typical household bill to around £2,500 a year by the end of March. From 1 April Chancellor Jeremy Hunt had pledged to continue support but at lower levels so a typical bill would have been around £3,000 a year.

The latest price cap projections would bring limited relief to households struggling with the cost of living crisis, should they materialize. It would also reduce the amount the government has to spend on supporting budgets. The Treasury finances the difference between the capped unit price charged to customers and the actual cost of buying electricity and gas on the wholesale markets.

Young estimated government support for energy bills could fall to £3bn in FY 2023-24, down from £25bn in the 12 months to 5.

On the household side, Young warned that costs to UK households would remain high compared to historical levels. A year ago, a typical bill was below the price cap at £1,277 per year. “As other bills mount, the cost of living crisis remains real and devastating for many,” Young added.

Investec’s latest forecasts, released on Wednesday, represent a drop of between £400 and £600 from forecasts made at the end of December. Other consulting firms are also expected to reduce their price cap estimates in a similar fashion.

The energy crisis was largely triggered by Russia’s invasion of Ukraine and cutbacks in gas supplies to Europe back in 2021, sending wholesale markets soaring.

But the drop in wholesale prices in recent weeks reflects a broader view in the industry that energy supplies are now plentiful for this winter and traders are becoming more confident they can fill up gas storage facilities across Europe from spring, despite lower Russian exports.

The UK has been partially helped by lower gas demand in recent days as strong winds and high imports from mainland Europe reduced the amount of gas used to generate electricity.

Gas typically accounts for around 40 per cent of UK electricity generation and is used to heat most homes. UK household electricity bills are likely to be lower after warm weather

Adam Bradshaw

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