Energy bills are set to increase for millions this autumn and households could be in for a bigger shock early next year.
The Ofgem price cap is going up by 4% on 1 October, meaning the average annual energy bill for the typical dual-fuel UK household paying by direct debit will climb from £1,663 to £1,723 a year.
The price hike affects the 22 million households on a standard variable tariff (SVT), but 11 million households on fixed rate energy tariffs will not see a change to the unit rates they pay.
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Ofgem says the driving factor behind the higher price cap is the increased wholesale cost of gas caused by the US-Iran war, which has disrupted oil and energy supply lines since 28 February.
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With tensions in the Middle East ongoing, analysts are now forecasting the price cap could rise as much as 25% in January.
What is the price cap?
The price cap determines the maximum unit rates and daily standing charges your energy provider can charge you. As it is a limit on unit rates, if you use more energy, your bills would be higher than the average – likewise if you use less, they could be lower. The price cap also varies by region.
The current price cap is £1,663 for the period between July and September, a 13% rise from the previous April price cap.
This headline figure is calculated by taking the average amount of energy used by the typical household and applying the unit rates and standing charges.
In July, Ofgem changed their definition of a ‘typical household’ to one that uses 2,500 kilowatts each year in electricity and 9,500 kilowatts each year in gas.
Where will energy prices go next?
The energy price cap will rise by 4% in the autumn, due to the volatility in the energy markets. This was in line with the expectations of forecasters.
However, as the Iran war is still ongoing and the global supply of oil and wholesale energy is still disrupted, energy prices are set to continue climbing, according to experts.
The January 2027 price cap will be officially confirmed by Ofgem by 25 November, however, Cornwall Insight, an energy consultancy well-regarded for the accuracy of their price cap predictions, has forecast it to rise by a further 9%, bringing the average annual bill to £1,872.
If the forecast turns out to be accurate, it would mean the average annual energy bill would be £149 higher in the winter than in the autumn.
Others have taken a more pessimistic view of where energy bills are headed.
Economists and analysts at Bloomberg Economics believe the price cap could rise as much as 25% in the first three months of next year, pushing energy bills up to £2,150 a year.
Meanwhile, the latest forecasts from energy firm EDF say energy bills will surge by nearly 26%, driving the average bill up to £2,165.
Will the government step in to lower energy bills?
The government has already stepped in twice this year to help lower energy bills. In April, some green levies were scrapped from energy bills, helping to bring prices down. From October, VAT will be removed from electricity bills.
But with prices still rising despite these interventions, some are calling for the government to do more.
Craig Lowrey, principal consultant at Cornwall Insight, said: “Households need to know what kind of support, if any, is coming, and when, so they can plan for the cold months ahead.”
Meanwhile, the trade body for the energy industry, Energy UK, has called on the government to introduce a more targeted support scheme for households struggling with their energy bills.
In an interview with BBC Radio 4 on 26 August, new energy secretary Miatta Fahnbulleh said the government was “trying to do everything that [they] can” to help households with the increased cost of energy.
She pointed to the decision to remove VAT, but did not say whether the government will introduce additional measures to help households.
How to get help with paying your energy bills
If you’re struggling to afford your energy bills, you might be able to get help through your energy supplier.
Octopus Energy customers can get help via the Octo Assist scheme, which includes free electric blankets or waived standing charges over winter. The electric blankets are generally only for the elderly, or those with medical or mobility issues.
The British Gas Energy Trust offers grants to customers of any energy firm. For example, those on prepayment meters owing between £50 and £1,700 and credit account customers owing between £250 and £1,700 may be eligible. The full eligibility criteria is on the British Gas Energy Trust website.
Alternatively, if you’re struggling with energy bill arrears, your energy firm might let you agree to a repayment plan. It will set an amount you must repay once weekly, fortnightly or monthly, covering what you owe plus an amount for your ongoing use.
You might be able to repay your debt directly through your benefits as well, via the Fuel Direct Scheme.
Additionally, some government schemes give certain households money towards covering the cost of energy bills.
Households in receipt of some means-tested benefits who use participating energy suppliers could get the Warm Home Discount. This is £150 of credit that is automatically applied towards your energy bill during the winter.
Meanwhile, pensioners with an income of £35,000 or less could be eligible for the Winter Fuel Payment, which is worth up to £300 each winter.
