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- Industry predictions put the next price cap at £1,846, 11.1% higher than today
- The UK is too reliant on gas and this is why it is set to jump
- The next energy price cap will be announced on 27th May
Energy bills are going to get more expensive from July. There’s no doubt about that, the only questions are:
- How much will they rise by?
- When will they come down?
We can answer the first question because the energy price cap is set to change in July.
If all the predictions from the major energy companies (Octopus, EDF, British Gas, ScottishPower, E.ON) and industry experts Cornwall Insight are taken into consideration, the energy price cap will jump by 11.1% when it is announced by Ofgem on the 27th May.
That means it will likely be £1,846, up from its current level of £1,641.
OVO Energy is not included because it doesn’t publish energy price cap forecasts.
ScottishPower and British Gas are the joint most pessimistic, forecasting a July to September energy price cap of £1,855. Octopus Energy is the most optimistic, saying the energy price cap will only reach £1,821.
| Name | Prediction |
|---|---|
| Cornwall Insight | £1,843 |
| Octopus Energy | £1,821 |
| EDF | £1,853 |
| ScottishPower | £1,853 |
| E.ON | £1,852 |
| British Gas | £1,855 |
The £1,846 figure should come as no surprise considering the massive volatility in wholesale gas and electricity prices since the US-Iran war began at the end of February. At the time of the last energy price cap announcement on 25 February (three days before Donald Trump and Strait of Hormuz was shut), the price of UK wholesale gas was 74.8 pence per therm (p/therm).
At the time of writing it is 113.3 p/therm, having been a maximum of 156 p/therm on 19th March. This is really important because the wholesale price of gas is the thing that most heavily affects household energy bills.
About 40% of our energy bills are made up by the wholesale price of gas because of something called ‘marginal pricing’, where the most expensive generator needed to meet demand (almost always gas) sets the price of the electricity generated.
While it is arguably the most efficient way of generating electricity (compared to regional pricing, which benefits high producing areas and penalises high consumption areas) it means that when gas is expensive, electricity is as well…even if renewables are cheap to produce.
Marginal pricing doesn’t automatically make electricity more expensive than gas, the UK’s lack of renewable energy capacity is also to blame. The more renewable energy the UK creates and the more storage capacity it builds the cheaper our bills will become.
Why? Because gas will be topping up the margin less often, making us less vulnerable to huge price shocks, such as the Russia-Ukraine war and the closing of the Strait of Hormuz.
Earlier this month Greg Jackson, CEO of Octopus Energy, said that unless the Strait of Hormuz (which has been closed since the beginning of the US-Iran war at the end of February) reopened by the end of May, bills would likely stay around their current level until at least October.
As for the question ‘when will bills go down?’, that’s much harder to answer because we don’t know when the Strait of Hormuz will reopen and how fast the UK government can ramp up renewable capacity.
We think it’s unlikely to happen anytime soon, and energy bills are likely to remain high until the end of the year. However, we will continue to keep an eye on everything and let you know when we think energy bills become cheaper.
The July-September energy price cap will be announced on 27th May.
