Energy bills are unlikely to fall below pre-crisis levels until at least the middle of the decade, the head of Britain’s energy regulator warned on Thursday.
The comments by Jonathan Brearley came as he announced that the energy price cap, which usually governs how much a typical household pays, was set to drop from £3,280 to £2,074 from July.
The sharp fall reflects a drop in wholesale market prices in recent months helped by relatively mild weather and efforts to save energy in Europe. The new cap, however, remains more than 60 per cent above the level at the end of 2021, when wholesale energy prices surged in the run-up to Russia’s invasion of Ukraine.
Brearley said he expected electricity and gas prices not to fall much further “in the medium term”. Asked to clarify the timeframe, an official said Brearley meant “at least two years”.
As wholesale energy prices soared last year, the cap, which is reviewed by Ofgem every quarter, peaked at £4,279 in January, compared with £1,277 in October 2021. State subsidies had limited the average household bill to £2,500, over the winter but as the cap drops below that level most support for households will end, meaning the annual average bill will fall by £426 from July.
“People should start seeing cheaper energy bills from the start of July, and that is a welcome step towards lower costs,” Brearley said, but added: “In the medium term, we’re unlikely to see prices return to the levels we saw before the energy crisis.”
He said the regulator, government and industry needed to work on more support for vulnerable households.
The government has ended universal financial help for households to offset the sharp rise in energy bills, although those receiving certain welfare benefits are due two more payments of £300 before those end in spring 2024.
Citizen’s Advice said the government should be looking at extending the help, warning that the continued high cost of gas and electricity was putting pressure on households struggling with the wider impact of high inflation on their budgets.
“For many, life is getting worse, not better. Year on year we’re breaking records for the number of people struggling with energy debt. It’s clear more government support will be needed in the future for struggling households,” it said.
Adam Scorer, chief executive of fuel poverty charity National Energy Action, agreed. “More than two and half million low income and vulnerable households are no longer receiving any government support for unaffordable bills. For them, the energy crisis is far from over,” he said.
Energy UK, a trade group representing energy retailers, warned a price cap above £2,000 was set to become the “new normal” and backed calls for targeted support for lower income households next winter.
“We also need to press ahead with expanding our own sources of domestic, clean power and making more of our homes energy efficient,” it added, “as these will help bring down energy costs permanently for all customers.”
Chancellor Jeremy Hunt told Sky News he was “willing to do what it takes” and increase support for households if energy bills rise again this autumn, although he added there was no expectation there would be a big increase in the price cap.
Cornwall Insight, the consultancy, forecasts the price cap will drop to £1,960 in October, rising slightly to £2,026 next January.
Under July’s cap, the unit cost of electricity will fall from 51p per kilowatt-hour to 30p and the unit cost of gas from 13p to 8p.
Ofgem also announced it planned to allow suppliers to increase their profit margin for accounts regulated by the cap from 1.9 to 2.4 per cent. The proposal, which is under consultation until the end of June, is expected to add about £10 to the average bill from October.
Ofgem said the move was needed to boost financial resilience after it tightened up rules on suppliers’ finances following a spate of collapses in late 2021.