Energy Bills Set to Rise Amid Global Tensions

Energy bills might be inching upwards once again, thanks in part to the rising wholesale gas prices following the conflict sparked by Hamas’ incursion into Israel.

Remember the good news we got when the energy price cap started to decrease? Well, both Ofgem, the regulator, and the experts at Cornwall Insight are now ringing alarm bells. They’re warning that gas bills might go up from January. However, it seems like our electricity bills might stay the same, since wholesale electricity prices haven’t felt the pinch of the conflict just yet.

A Look at the Numbers

Right now, an average UK household is forking out about £1,843 every year on energy bills, according to Ofgem’s latest energy price cap. This cap was tweaked just last month, considering the reduced energy use amid the cost of living crunch we’re experiencing. Experts are now predicting that, from January, this number might increase by a bit more than £50, bringing the annual total to nearly £1,898. While the Israel-Hamas conflict is one reason for this potential rise, should tensions escalate, we might be looking at even more significant hikes.

The Big Picture on Gas Prices

Jonathan Brearley, who heads Ofgem, put it bluntly last week. He mentioned that the ongoing global scenarios emphasise that the wholesale markets might stay unpredictable and prices could remain elevated for a good while. Even though no one can really predict what’s on the horizon, Brearley believes the current high and fluctuating prices might be the new normal. With all these international incidents applying pressure, gas prices are very likely to jump this winter.

During most of 2023, we saw a downward trend in wholesale gas prices. However, things took a turn after Hamas invaded Israel on 7 October, leading Israel to close its offshore Tamar gas field. There’s growing concern among energy pundits that if this conflict spreads, it might disrupt gas flow from other parts of the Middle East too.

However, it’s not just the Middle East that’s causing these price spikes. Other global events are in play. Europe experienced inconsistent gas supply after Russia stopped its gas exports due to its invasion of Ukraine in 2022. In addition, Australian gas workers are gearing up for a strike, and a damaged gas pipeline between Finland and Estonia has left many worried about potential similar incidents elsewhere.

A Peek Behind Your Energy Bill

Now, you might wonder why your monthly energy bill doesn’t seem to reflect these wholesale prices immediately. Here’s the reason: energy firms usually ‘hedge their bets’ by purchasing gas and electricity way before it’s actually needed. This is because wholesale energy prices are like rollercoasters – always going up and down. So, the amount you pay now might be based on the wholesale prices from a few months, or even years, ago.

Currently, over 90% of UK households have their energy bills limited by the Ofgem price cap, adjusted four times annually. Most energy deals don’t shadow wholesale prices too closely. A few exceptions exist, like the specialist tariffs offered by companies such as Octopus.

An Expert Weighs In

Craig Lowrey, a top consultant at Cornwall Insight, has a keen eye on the situation. He recently told the media that daily changes in price cap predictions are mirroring the movements in the wholesale energy market. This showcases the vulnerability of UK’s energy prices to international incidents. Lowrey also emphasized the urgency for the UK government to reduce reliance on imported energy. By focusing on sustainable, locally-sourced energy, the nation could bring more stability to prices.

Cornwall Insight, known for its spot-on predictions regarding the Ofgem price cap, believes that the typical energy bill will see an increase of £54.97 annually from January 1, 2024. However, there’s a silver lining. It’s expected to decrease to £1,819.60 in April, drop further to £1,781.37 in June, but might again rise to £1,825.21 come October.

In summary, the global landscape continues to influence our local energy bills. Stay informed and plan your finances accordingly.