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- The US-Iran war is hiking up the price of gas
- Cornwall Insight predicts an 18% hike in July
- But bills will actually be lower for the next three months, what can the government do to keep them down?
What’s going to happen to household energy bills? Cornwall Insight say they are going up and expects energy price cap to jump by 18% in July to £1,929.
The answer to the question, ‘will energy bills go up or down?’ depends on what timeframe you’re using, because the answer will differ depending on if you look at it in the short term, medium term or long term and also how easily it can pivot a gas-import-dependent country to one that uses renewable energy.
However, to answer it simply: between now and the end of 2026, your energy bills are very likely to go up. It possible, and even probable, that if we jump forward to April 2027, your energy bills may be 15-20% higher than they are now.
The obvious reason is the US-Iran war, as well as the fact that the UK is particularly vulnerable to chaos in the energy markets.
The good news is that in the short term our energy bills might actually go down because the government removed some green levies from the price of electricity in the Autumn Budget back in November. On top of that, the energy price cap, the maximum energy companies can charge, will be lower from 1 April to 31 June than it was from 1 January to 31 March.
Despite that, we can’t escape the conclusion that energy bills will almost certainly be a big burden on most households for the foreseeable future. We’ve broken down why they will likely go up long term, why they will go down in the short term, and what you can do to cope with it.
Why energy bills will go up
On the surface, this is easy enough to answer: the US-Iran war, which at the time of writing has been ongoing for 32 days and shows no sign of ending. But why is the US-Iran war so important for our energy bills?
Quite simply, Iran’s huge oil deposits and position close to other vital countries with massive amounts of energy. Iran has 208.9 billion barrels of proven crude oil reserves, the third-largest in the world behind Venezuela and Saudi Arabia. It accounts for 12% of the world’s oil reserves and 24% of the Middle East’s. The country is a monumental force when it comes to global energy.
Just as importantly as its oil reserves, or perhaps even more so, it is in charge of the Strait of Hormuz, a small stretch of sea through which about 20% of the world’s liquified natural gas (LNG) passes. In response to US bombing, Iran has closed the strait, which has caused chaos on the global energy markets, making wholesale gas massively more expensive.
For example, UK natural gas – that is the LNG we use – is now 41.7% more expensive than it was on 27 February, the day before the conflict started (accurate at the time of writing).
All that wouldn’t be too much of a disaster if it weren’t for the fact that in the UK we import (that is buy from abroad) 60% of our natural gas, mainly from Norway, the US, and, you guessed it, the Middle East, in particular Qatar.
It also wouldn’t be too much of a disaster if the UK were better placed to switch to renewables, but it isn’t. Despite ongoing improvements and changes to connect it to renewable projects such as solar farms and onshore and offshore wind, the National Grid is still far too old and slow to get households off gas and onto cleaner, cheaper energy.
There are currently about 100 gigawatts (GW) of projects waiting to be connected, these are renewable energy sources that could power millions of homes that are just waiting to be signed off.
The government has tried to cut the connections queue by prioritising projects that are ready to go, but it has come too late to help households fight off this most recent gas price boom.
Another critical thing is how electricity is priced, which ties us even more tightly to the cost of gas. In the UK the cost of electricity is set by a process called ‘marginal pricing’.
This means the price of electricity is set by the most expensive generator, which is almost always a gas-powered station. That means how much you pay for electricity is set by the price of gas and it currently makes electricity four times the price of gas, something called the ‘Spark Gap’.
To answer the question ‘Why will our bills go up?’ as concisely as possible, we can break it down into three areas:
- The US-Iran war and the closing of the Strait of Hormuz has made the price of gas shoot up
- The National Grid is too old to help households move from gas to renewables
- The way our electricity is prices – marginal pricing – means that not only is gas setting the price but that electricity is four times more expensive
Will our energy bills go down?
Yes, in the short term bills will almost certainly go down. Firstly, energy bills are actually lower in April, May and June than they were in between January and March because of the energy price cap, which was set just a few days before the US-Iran conflict began.
The energy price cap, as of 1 April, is £1,614, which is 7% less than it was on 31 March, meaning at least for the next three months, most households will be paying less than they were earlier in the year.
Another thing is that the government removed green levies from the price of electricity in its Autumn Budget, which is set to save a typical duel fuel household on a fixed tariff as much as £132 a year.
It’s a great question, and there are two ways we can answer it. In the short term, you might be lucky enough to see your energy bills fall, thanks to the government’s decision at the Autumn Budget in November, which removed some green levies from the price of electricity.
This is great news, and it is a sign that the government is serious about brining bills down. That gives another possible answer to the question ‘Will our energy bills go up or down?’
If we look ahead to the next decade, if the US-Iran war has shown anything, it’s that it’s absolutely critical the government does one thing above all else: protect households from shocks in the gas markets.
How can it do this? By ramping up improvements to the National Grid, reforming our marginal pricing structure, and helping as many people as possible install solar panels, heat pumps, double glazing, and insulation.
Solar panels can help bring down bills by 70% in the medium term and make a household energy independent in the long term due to the Smart Export Guarantee and the 10-year payoff period. A heat pump can heat a home more efficiently than a gas boiler and future-proof a home against price shocks.
As for insulation and double glazing, these have immediate benefits to a households energy bills and will make your other technology investments more effective.
Will energy bills go up or down? In the short term – down, in the medium term – they will increase. But in the long term? That will depend on the government and how quickly they can get renewable technology into people’s homes.
