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UK domestic energy prices to rise by 80% from October
7/9/2022
News
UK energy regulator Ofgem has announced the increase in the domestic energy price cap – an 80% rise to £3,549/y for a dual fuel arrangement for an average household from 1 October 2022. It also warned that prices could be significantly higher again next year.
The increase reflects the continued rise in global wholesale gas prices, which began to surge as the world opened up from the COVID-19 pandemic and have been driven still higher to record levels by Russia slowly switching off gas supplies to Europe, explained the regulator. Ofgem was quick to add that it understands the hardship that energy prices will cause this winter and is urging the incoming Prime Minister and new Cabinet to provide an additional and urgent response to continued surging energy prices.
The price cap puts a maximum unit price on energy that reflects what it costs to buy energy on the wholesale market and supply it to UK homes. It also sets a strict and modest profit rate that suppliers can make from domestic energy sales. However, unlike energy producers and extractors, most domestic suppliers are currently not making a profit, added Ofgem.
The price cap protects against the so-called ‘loyalty premium’ where customers who do not move suppliers or switch to better deals can end up paying far more than others.
The regulator said it is not giving price cap projections for January 2023 because the market remains too volatile. However, the market for gas in winter means that prices could get significantly worse through 2023.
Jonathan Brearley, CEO of Ofgem, said: ‘The price of energy has reached record levels driven by an aggressive economic act by the Russian state. They have slowly and deliberately turned off the gas supplies to Europe causing harm to our households, businesses and wider economy. Ofgem has no choice but to reflect these cost increases in the price cap.’
Brearley added: ‘The government support package is delivering help right now, but it’s clear the new Prime Minister will need to act further to tackle the impact of the price rises that are coming in October and next year. We are working with ministers, consumer groups and industry on a set of options for the incoming Prime Minister that will require urgent action. The response will need to match the scale of the crisis we have before us.’
Green light for reopening of Rough gas storage
In other gas related news, the North Sea Transition Authority (NSTA) has given Centrica the required regulatory approvals and consents to reopen Rough, the UK’s biggest gas storage facility.
Located in the southern North Sea, off the coast of Yorkshire, Rough closed in 2017. It is expected to provide some 28bn cf of gas storage capacity for winter 2022/2023.
