- Ofgem increases domestic price cap by 0.2% due to higher policy costs
- Government under pressure to unveil measures to cut household bills
- Analysts predict further cap rise in April due to non-energy costs
LONDON, Nov 21 (Reuters) – Millions of British households will see energy bills edge higher next year after regulator Ofgem said it would increase its domestic price cap by 0.2% from January due to higher policy costs.
The rise, though small, will be a blow for the government which has pledged to reduce energy prices and is under pressure to unveil measures in the budget next week to help cut household bills.
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The increase is partly due to the addition of nearly 1 pound per month to bills to help pay for the new Sizewell C nuclear plant, which is expected to cost some 38 billion pounds ($50 billion), and comes despite a 4% fall in wholesale energy costs.
Breakdown of price cap costs in a UK household dual fuel bill (%)
Most analysts had expected the lower wholesale costs to lead to a slight fall in bills.
Wholesale gas and power prices are a major part of the formula Ofgem uses to calculate the price cap, but network and policy costs are becoming a larger part of the bill as the network is upgraded and more social and environmental levies are added to bills.
Consumer groups said energy costs remained unmanageable for many and urged more support for those struggling.
“We know that energy bills remain too high,” said Minister for Energy Consumers, Martin McCluskey.
He said the government had expanded a scheme to help vulnerable households pay their energy bills this winter and the move to renewables and cleaner energy would help bring down costs over the longer term.
FURTHER PRICE RISE ON THE HORIZON
Analysts expect the cap will rise further next April with levies added to bills to cover maintaining and upgrading the energy network expected to increase.
“Our forecast shows bills climbing again in April, but not because of wholesale energy – it’s down to the non-energy costs that keep the system running and future-proofed,” said Craig Lowrey, principal consultant at Cornwall Insight.
Cornwall forecasts the cap will rise to around 1,814 pounds a year in April 2026 without intervention.
Experts urged the government to introduce new measures in the budget.
“The industry is keen to see the government take action to reduce bills … for example by removing some levies from electricity costs,” said Dhara Vyas, chief executive of Energy UK.
The new cap of 1,758 pounds ($2,300) a year for average use of electricity and gas is up around three pounds from the previous cap for the period from October to the end of December.
British domestic energy price cap for average use
($1 = 0.7639 pounds)
Reporting by Susanna Twidale in London, additional reporting by Raechel Thankam Job and Yadarisa Shabong in Bengaluru; Editing by Sherry Jacob-Phillips, Rashmi Aich and Conor Humphries
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