Energy bills still set to rise, just a little less than before
The government this morning announced a range of measures which it claims should save households around £50 per year on their energy bills. While this might seem like good news at first, the changes don’t mean energy bills will go down. Households are still expected to pay more for energy in 2014.
Average bill increases
The government plans to save consumers money by reducing the amount energy companies have to spend on making the UK’s homes more energy efficient. Energy companies plan to pass that saving on to consumers.
But the government-induced cut isn’t enough to reverse energy companies’ price hikes, announced earlier this year. That means energy bills will continue to rise on average – just not as much as was previously expected.
The graph below shows how much less energy bills are expected to rise, according to the energy companies’ statements this morning:
Image - Ave energy bills based on announcements (note)
Source: Energy company press releases. These figures are all based on different assumptions of how much energy households use each year (see note at the end of this piece).
British Gas says it will take £53 off its expected price rise due to the government’s announcement, while SSE says it will increase its prices £50 less than it otherwise would have.
There’s no change to EDF’s expected annual bill, as its original price hike was around 4 per cent on the basis that the government would revise its green levies. Today’s announcement does just that, so EDF’s customers can expect their bills to rise about as much as the company said they would back in October.
Confusingly, these figures are all based on different assumptions of how much energy households use each year (see note at the end of this piece).
Npower and E.On says they will reduce their price hike in line with the changes but haven’t said by how much. The final ‘big six’ company, Scottish Power, is yet to release a statement.
Still rising
Energy bills are set to continue rising because the other costs energy companies face are still expected to increase.
Market regulator, Ofgem, says environmental charges only account for eight per cent of a household energy bill, and the government’s changes only affect a small part of that.
In contrast, the wholesale cost of energy – how much companies have to spend on getting the fuel to run their power stations – accounts for around 80 per cent of a bill. As the wholesale price is expected to continue to rise, bills are still likely to go on increasing.
So the government’s announcement looks like it’s going to have a small, short-term impact on household energy bills – announced just in time for Christmas. But energy bills will still rise in the New Year.