Energy bills to hit £500 a month in January, experts warn

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The average UK household’s energy bill could soar to £500 in January alone, experts have warned.

BFY Group, a utility consultancy, expects the price cap on bills to hit £3,850 between January and April next year, hundreds of pounds more than previous forecasts.

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The average UK household’s electricity bill could rise to £500 in January (Photo: Adobe)

dr Gemma Berwick, Senior Consultant at BFY Group, said: “Following further increases in wholesale prices as gas flows from Russia to Europe via the Nord Stream 1 pipeline slow to 20% of capacity, we now forecast an increase in the Ofgem price cap £3,420 in Q4 2022 and £3,850 in Q1 2023.

“This will bring the average household bill to over £500 for January alone.”

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If predictions come true, it will add further pressure to already strained households and nearly double today’s record price cap, currently set at £1,971.

Cornwall Insight, another consultancy, had forecast a price cap of £3,364 for January three weeks ago, but circumstances have changed significantly since then.

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BFY now believes Ofgem must set the price cap change from early October at £3,420 – a significantly higher sum than the £2,800 originally forecast by Ofgem in May – with a further increase expected when the cap is reviewed in January .

The cap used to be updated twice a year, but recent changes mean that a new price cap is set every three months. The upper limit is based on the average energy costs of the previous months.

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Analysts say the picture could change by January, but they already have most of the data needed to accurately predict October’s surge.

Deteriorating forecasts and fears that the market will continue to rise will put further pressure on the government to support the most vulnerable households through the energy crisis.

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Ministers had to act in May by announcing a massive support package for households, but at the time the October price cap forecast was just £2,800 – more than £600 less than the last forecast.

The electricity supply could be “short” this winter

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The bleak price cap forecast comes amid warnings that the UK could run out of electricity in the winter.

The Electricity System Operator (ESO), the body in charge of grid balancing, said margins could tighten significantly towards the end of the year, but he believes he should be able to keep the lights on.

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A report said: “Our operational modeling indicates that there could be some tight periods this winter, most likely to occur in the first half of December.”

The grid must ensure that it has enough power generators ready when power demand spikes at peak times, meaning it must maintain a margin above forecast demand to cope with short spikes.

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If the margin falls below certain values, the ESO sends out a so-called Electricity Margin Notice (EMN), which informs the generators that more electricity is needed.

ESO said it may need to use the EMNs this winter to ensure supplies are stable.

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The report notes that the UK is not as dependent on Russian gas as other countries in Europe, but “it is clear that stopping gas flows to Europe could have knock-on effects, including very high prices”.

ESO has been working with the government to ensure four coal-fired power plants are still operational when they need to be requested this winter, and they are working on a fifth.

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It is also “exploring options” to incentivize energy consumers to reduce their consumption during peak periods.

ESO said the UK should be able to leave the lights on in the winter, but it will likely be a difficult time.

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Currently, the Nord Stream 1 pipeline, which brings Russian gas to Europe, is only running at 20% of its maximum capacity, raising concerns about whether there will be enough gas this winter. Much of Britain’s electricity comes from gas, so any serious collapse in gas supply could affect electricity availability.

The Department for Business, Energy and Industrial Strategy said: “As this report shows, the UK’s secure and diverse energy supply will ensure that households, businesses and industry can be confident they are getting the electricity and gas they need to need.

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“The UK is in a fortunate position having access to our own North Sea gas reserves, imports from reliable partners like Norway, the second largest LNG (liquefied natural gas) port infrastructure in Europe and a gas supply backed by robust legal contracts.

“Thanks to a massive £90 billion investment in clean energy over the past decade, we have one of the most reliable and diverse energy systems in the world, and unlike Europe, we are not dependent on Russian energy imports.”

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