As it became clear that the UK’s dependence on gas is what caused the rise in bills, the energy crisis resulting from the war with Ukraine cost an equivalent of £1,000 per adult.
The Energy and Climate Intelligence Unit’s (ECIU), in a study, estimated that the high wholesale gas prices following Russia’s invasion almost a year ago had cost UK suppliers an additional £50bn-60bn on top of the £10bn-£20bn they would have spent in a normal calendar year.
The invasion pushed wholesale gas prices to new records, already higher than historical averages.
Household energy costs are much higher than the £1,000 additional highlighted by ECIU – which doesn’t account for normal wholesale costs, suppliers’ margins or other charges wrapped into bills.
According to the International Monetary Fund, British households are the most affected in Western Europe due to their high dependence on natural gas. The UK relies on gas to heat 85% of its homes and generates about 40% of its electricity. This makes it one of the most energy-efficient countries in Europe.
According to the study, a typical household could have saved as much as £1,750 if it had made greater progress towards net zero by increasing housing efficiency, producing more power from wind and using heat pump technology.
Dr Simon Cran McGreehin is the head of analysis for ECIU. He stated: “The energy crisis hit UK households more than other west European countries. This is because we are incredibly dependent upon gas as a nation. International markets set the price of gas, so it is important to reduce your consumption.
“The offshore wind ban was one of the obstacles to this. In terms of installing electric heat pumps, we are also behind countries like Estonia, Poland, and Sweden.
According to the study, annual savings of approximately PS34bn could result if there was a similar crisis in 2030 when the UK had more affordable renewable energy.
Research last week estimated that rising oil prices could cause extreme poverty in the world, with up to 141 million more people.
In the face of fears that Europe would suffer from shortages this winter and record wholesale gas prices, they reached a record high of 570p per therm last summer. They were even higher in mid-December at 381p per therm.
The price has dropped sharply since to about 125p a therm because of mild winter conditions and stronger-than-expected gas storage levels in Europe. These drops are unlikely to translate into household bills quickly as energy companies buy their supplies in advance.
Martin Young, an analyst at Investec, predicted that the Ofgem price limit would reach £3,332 by April and then £2,165 by July before increasing slightly to £2,190 starting in October.
The government’s Energy Price Guarantee aims to limit typical annual bills to £2,500 and rises to £3,000 starting in April.
On Tuesday, Alison Rose (chief executive at NatWest) was appointed co-chair of the government’s energy efficiency task force. Lord Callanan, the net zero minister, was also named. The banker will be responsible for reducing national energy consumption by 15% in the next seven years and lowering bills.
After a two-year pause due to low competition and high bills, switching between energy suppliers will likely be back this year. Young suggested that some suppliers might offer fixed-priced deals to attract new customers, below the £3,000 guarantee.
Cornwall Insight, an energy consultancy, stated that consumers would have the opportunity to “take back some control” of their bills if costs are lower later in the year. Suppliers will then compete for customers.
As the sector tried to increase competition, switching between suppliers of energy became more common in the last decade. The sharp rise in gas prices in 2021 led to 29 suppliers going bust, leaving the remaining companies offering fixed deals for customers at or below the price cap.
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