Earlier this week the UK’s energy regulator, Ofgem, increased the annual household energy price cap to an eye watering £3,549, or about $4,200 USD.
I used to work in the UK’s energy industry between 2017-2019, and when I started, the average annual household bill was only £900.
Much of the increase has come in the past year, and has been driven by two main factors. Firstly, economies reopening in 2021 after COVID have seen an increase in demand for energy. Secondly, Russia’s invasion of Ukraine and their throttling of gas supply to Europe sent prices skyrocketing across the continent. Although the UK only receives about 3-4% of its gas from Russia, its a net importer of gas from Europe, meaning its prices are closely correlated to Europe’s.
Although a price cap is typically put in place to protect and reassure consumers, this one protects, but it doesn’t reassure. If anything, being reminded constantly about the price cap number is causing significant stress and frustration.
Sadly, things are set to worsen. Auxilione, a consultancy, forecasts the price cap to increase to £4,650 and then to £5,456 in subsequent quarters. Scarily, this would mean the average household energy bill would be more than 20% of the median income. If it gets this bad, I also have concerns about the knock-on effect this could have for the economy as a whole.
This winter, and likely the next, is going to be extremely difficult for people in the UK. I’ve already heard worrying stories such as people cutting back on buying fresh vegetables because they can’t afford the energy to cook them.
Today’s post is grim and offers little warmth for the winter ahead. Here’s hoping for better news in the months ahead, and that things won’t be as bad as experts fear.