In this article, Carbon Brief sets out how and why UK household energy bills are due to reach historically unprecedented levels this winter, shows how the gas-fuelled increase in bills will push household energy costs towards £200bn and looks at the options to manage the crisis.
- Energy bills are already at their highest levels in at least half a century and are set to nearly triple by early next year, reaching well over £5,000 for the average household.
- UK households face a £129bn increase in energy costs (5.1% of GDP), to a total of £193bn per year (8.1% of GDP). This means households will face energy costs greater than UK government education spending (£100bn) and the defence budget (£49bn) put together.
- Since households have historically accounted for half of national energy spending, the overall costs for the economy as a whole are likely to reach in the region of 16% of GDP.
- Rising bills will push two-thirds of UK households into fuel poverty by January 2023.
- An 11-fold increase in UK wholesale gas prices since 2019 explains 96% of the increase in household energy bills.
- Green levies will fall from 5% of bills to less than 3% of the total in October.
- Government support for households to date amounts to just £17.5bn, and plans to cut VAT or remove levies would only save around £4bn each.
- Proposals for extra support from leadership hopefuls Liz Truss (£11bn) and Rishi Sunak (£10bn), as well as from the opposition Liberal Democrats (£36bn), are still nowhere near matching the scale of the increase in bills facing households (£129bn).
- The opposition Labour Party’s £29bn “six month freeze” could cost £73bn if extended for a year.
- The least efficient homes face bills up to £2,000 higher than those rated “C” or better.
- Bills would have been some £13bn lower if governments had not “cut the green crap” by rolling back climate policies over the last decade, equivalent to £220 per household.
- Households could cut their bills by more than £300 by making simple changes to their boiler settings, with larger savings available from insulation, solar panels or electric vehicles.
- How high are household energy bills going to get?
- Why are energy bills rising so much?
- What could be done to reduce bills?
How high are household energy bills going to get?
In October, the cap on domestic energy bills is due to reach new highs of more than £3,500, according to the latest forecasts from various financial services and consultancy firms.
Investecforecasts the cap will increase from its current level of £1,971 per year for the average household to £3,523 on 1 October, an increase of 79%.Cornwall Insightssuggests £3,582. (Update, 26/08/2022: Ofgem hasannouncedthe energy price cap will increase to £3,549 per year for dual fuel for an average household from 1 October.)
The cap is expected to increase again on 1 January and then even further on 1 April, although forecasts beyond this year remain subject to significant uncertainty.
On 4 August, Investec forecast an increase in the cap to £4,210 on 1 January. By 9 August, Cornwall Insights was forecasting £4,266 for January and £4,426 from 1 April. Yet by 10 AugustAuxilionewas putting the January price cap at£4,467and itsforecastfor Aprilreached £5,038.
If this forecast proves accurate, then bills will have risen from £1,138 per year for the average household in summer 2021 to over £5,000 per year in April 2023, more than a four-fold increase in just 18 months. (See:Why are energy bills rising so much?)
把这个在历史背景下,碳短暂的一个亚慱官网alysed government data on household energy spending over the past half century and found, after adjusting for inflation, that this winter’s bills will be truly unprecedented, in figures going back more than half a century.
The current crisis is so acute that the average family will face “dual-fuel” gas and electricity bills nearly three times higher than anything they have experienced since 1970.
The red line in the chart below shows dual-fuel bills for the average household since 1970, with the figures adjusted for inflation and shown in current prices. (The pale pink line adds the costs of solid and liquid fuels, in other words the coal and oil that once saw more widespread use for heating.)Average household energy bill, £ per year, adjusted for inflation. Source: Carbon Brief analysis of government data with forecasts from Investec Securities, Cornwall Insights and Auxilione. See below for detailed methodology. Chart by Tom Prater for Carbon Brief usingHighcharts.
That bump in the 2010s marked the last major outbreak of UK media and political interest in energy bills. Anow-infamous2013Sun frontpagereported then-prime minister David Cameron’s answer to rising costs: to “get rid of the green crap” – meaning cut climate policies.
The climate policy rollbacks that followed have left energy bills billions of pounds higher than they would have been, if energy efficiency and renewable investment had continued,亚慱官网found in January. (For an updated estimate see:What could be done to reduce bills?).
Looking at energy costs as a share of overall consumer spending, this winter will also see unprecedented pressure on household finances. Assuming the latest forecasts are accurate, heat and power would peak at 11% of household spending, with vehicle fuel costing another 3%.
The share of household spending going towards gas and electricity since 1970 is shown by the red line on the chart below, with the pink line including other heating fuels. The blue line represents overall household expenditure on energy, including domestic energy and vehicle fuels.Share of household spending on gas and electricity (red line), domestic heat and power (pink) and home energy plus vehicle fuel (blue), 1970-2023, %. Source: Carbon Brief analysis of government data with forecasts from Investec Securities, Cornwall Insights and Auxilione. See below for detailed methodology. Chart by Tom Prater for Carbon Brief usingHighcharts.
The early 2023 peak is particularly striking. The 13% of average household expenditure going towards energy and fuel would far exceed the levels seen in the early 2010s – whenhigh oil pricespushed up the cost of motoring – and would even eclipse the1970s oil price shocks.
Moreover, the averages across households and seasons conceal even greater pressures on thepoorest families——特别是在winter monthswhen energy use is higher – as well as on homes that arepoorly insulated(See:What could be done to reduce bills?)
More than 18m households – nearly two-thirds of the UK – will be infuel povertyby January 2023, according to updated figures shared with Carbon Brief by researchers at theUniversity of York. This compares with less than a fifth in 2019 and less than two-fifths today.
The research shows that more than a fifth of households will be spending at least 25% of their net income on energy bills. It also finds fuel poverty increasing sharply along anorth-south divide.
Collectively, the UK’s households face a £129bn hike in their energy costs by next spring (5.4% of GDP, red bar below), taking spending on power, heat and fuel to £193bn (8.1%). This total is comfortably larger than the combined UK budgets for defence (£49bn) and education (£103bn). It is also nearly as large as the UK’s annual health budget (£217bn).Top column: Household energy costs in summer 2021 (pink) and the increase to April 2023 (red), expressed as a share of UK GDP (%) and in £bn. Lower columns: Government spending on defence, education and health. Source: Carbon Brief analysis. Chart by Carbon Brief usingHighcharts.
Since households have historically accounted foraround halfof national energy spending, the overall costs for the economy as a whole are likely to reach in the region of 16% of GDP.
This is far outside the historical “stable range” of national energy expenditure identified in a2018 researchpaper from University College London, covering more than 30 countries since 1970.
It finds long-run national energy expenditures have tended to be around 8% of GDP, with periods of higher spending causing shifts in technology, behaviour and economic structure until the relationship between economic activity and GDP is brought back towards that stable range.
Why are energy bills rising so much?
Energy bills are rising as a result ofrocketing gas prices, which have increased 11-fold since 2019.
The UK is particularly exposed to high gas prices, because85% of householdsuse gas boilers to heat their homes andaround 40%of electricity is generated in gas-fired power stations. (In France and Germany, fewer than 50% of homes are heated with gas boilers.)
Moreover, theelectricity marketoperates in a way that means the price of power is almost always set by the price of gas. (Agovernment consultationon how to reform this system explains that the market arrangements “had largely been designed for a fossil fuel-based electricity system”.)
This means UK wholesale electricity prices (red line in the chart below) are largely driven by wholesale gas prices (blue line): There is a 98% correlation between the two.Blue line, left axis:Front monthwholesale gas prices at the UK “national balancing point” (NBP),pence per therm. Red line, right axis: Month-ahead UK baseload power prices, £ per megawatt hour (MWh). Source:Refinitiv. Chart by Tom Prater for Carbon Brief usingHighcharts.
与能源费用自1970年以来的图表(见:How high are household energy bills going to get?) this chart confirms that gas prices – and therefore electricity prices and energy bills – have been relatively stable over the past 15 years, in comparison to their stratospheric levels over the past twelve months.
In total, Carbon Brief analysis reveals that sky-high gas prices are behind 96% of the increase in household energy bills expected to take place between summer 2021 and spring 2023.
Another 3% is due to the collapse of multiple energy suppliers last winter. The cost of managing the customers of these failed businesses is being passed on to households via their bills.
The chart below illustrates the dominant role of wholesale energy costs (black bars) in driving higher household energy bills. In comparison, green levies and policy costs (red) have fallen since last year. The temporary cost impact of supplier failure is included in the blue bars labelled “other”.对英国的贡献家庭能源价格上限in 2021, 2022 and 2023, £ per year, from policy costs (red), wholesale costs (black), other costs (blue) and VAT (grey). Policy costs include social support, renewable subsidies and energy efficiency. Other costs include network charges, operating costs, profits and the cost of supplier failure. The figures relate to the annual price cap, which has been revised every six months by energy regulator Ofgem – but is moving to quarterly updates from autumn 2022 – and is based on typical consumption of 2,900kWh of electricity and 12,000kWh of gas per year. Source:Ofgemfor past and current levels; estimates for Q4 2022 onwards from Investec, Cornwall and Auxilione; with Carbon Brief analysis. The 2023 forecasts are based onforward pricesfor gas and electricity, meaning they are indicative and likely to change. Chart by Tom Prater for Carbon Brief usingHighcharts.
Green levies currently make up less than 5% of energy bills under the summer 2022 price cap and this figure will fall further to less than 3% on 1 October. The roughly £95 per household per year of green levies pays subsidies for older renewable energy projects.
Another 3% of bills today – £57 per household – goes towards social policy objectives. This money pays for the “warm home discount” that helps poorer pensioners with their bills, as well as the “energy company obligation”, which aims to tackle fuel poverty by insulating homes.
In total, green levies and social policy costs make up 8% of bills today, a total of £153. This amount is expected to remain unchanged for the next few price cap periods but will make up a declining share of bills – less than 5% from October – as wholesale prices dominate the total.
Levies are largely paid via electricity bills, artificially increasing the cost of electricity relative to gas. Green levies make up 9% of electricity bills today, with social policy costs adding another 3%. This 12% share is down 23% in summer 2021. In contrast, levies make up just 3% of gas bills.
The “contracts for difference” (CfDs) that give guaranteed prices to new renewable energy schemes are currently costing the average household just 28p per year.
They will turn negative andstart reducingconsumer energy costs from October. The design of the contracts means projects pay money back to consumers when electricity prices are very high.
As wholesale gas prices are rising and the portfolio is expanding, this saving will increase to around £18 in January, according to Auxilione’s detailed forecasts shared with Carbon Brief.
What could be done to reduce bills?
There are a range of options to reduce bills in the short, medium and long term. These include direct payments to struggling households, boiler adjustments, behavioural changes and home improvements to reduce the amount of energy needed to stay warm.
Given the latest CfD projects werefour times cheaperthan current gas prices, expanding renewable energy capacity is also a way to cut bills in the medium term. Similarly, solar panels, electric vehicles and even heat pumps can cut bills, albeit they come with high upfront costs.
Government says its 5p per litrereduction in fuel dutyis worth £2.4bn and its package of energy bill grants, payments via council tax, benefits-related support and other measures is worth £15bn.
这包括所有家庭的£400,£150 those in Council Tax bands A-D and up to £650 for those on means-tested benefits, a total of up to £1,200 for some families. There is separate support for those with disabilities and for pensioners on low incomes.
These figures can be compared with the analysis above showing households face a £129bn hike in their overall energy costs, with energy bills rising by £4,100 for the average household.
The chart below compares these figures with current government support and proposals from the candidates to be the UK’s next prime minister, as well as from the opposition Liberal Democrats and the Labour Party.Top column: Household energy costs in summer 2021 (pink) and the increase to April 2023 (red), expressed as a share of UK GDP (%) and in £bn. Lower columns: Current and proposed support measures. Source: Carbon Brief analysis. Chart by Tom Prater for Carbon Brief usingHighcharts.
Proposals by foreign secretary Liz Truss to temporarily “suspend” green levies would only take £4bn off household bills, while former chancellor Rishi Sunak’s pledge to take VAT off bills would be equivalent to £5bn under the October cap or £6bn in January.
Sunak’spledgeto cut income tax wouldcost £19bnbut would only be brought in at some unknown point in the future wheninflation is under control, so is not included in the chart. He has also indicated he would offer an extra £5bn of extra household support, theTimesreports.
The Liberal Democrat leader Ed Davey has suggested a £36bn “energy furlough scheme” that he says would “cancel” the £1,400 increase in bills in October.
The Labour opposition has announced£29bn to “freeze” billsfor six months from October. Carbon Brief analysis confirms that this amount would cover the increase expected under the October and January caps. However, the analysis suggests extending the freeze for a year would increase the cost to around £73bn (3.1% of GDP).
As already noted, the widely-quoted price cap for the average home applies to usage of 2,900 kilowatt hours (kWh) of electricity and 12,000kWh of gas per year. This conceals wide variation between different household types and locations.
The least efficient “F” or “G” rated homes face bills as much as £2,000 higher than those rated “C” or above, Carbon Brief analysis shows. If the cap for average households hits £5,277, an average “C” rated home would pay £4,494 whereas an average “F” rated property would pay £6,585.
These dramatic differences illustrate the potential impact of better insulation, which can cut gas billsby a fifth. Moreover, they highlight the lost opportunity from government cuts to energy efficiency policies in the wake of David Cameron’s “green crap” moment.
Updated Carbon Brief analysis shows that energy bills would have been £9.5bn lower under the October price cap and £13bn lower in January, if successive Conservative-led governments had not rolled back climate policies over the past decade. (SeeCarbon Brief’sJanuary article for methodology.)
The savings would have been equivalent to £168 per household in October and £220 in January.
These savings would have come from additional cheap renewable capacity (blue bars), more efficient homes (yellow) and new homes being built to zero-carbon standards (red).Estimated annual savings under the current and forecast future energy price caps, if policies had not been scrapped after 2013. Source: Carbon Brief analysis. Chart by Tom Prater for Carbon Brief usingHighcharts.
Whereas insulation takes time and money to install, there are immediate savings to be had fromadjusting the settings结合锅炉那t heat most homes.
Carbon Brief estimates that reducing the boiler “flow temperature” and turning off hot water “pre-heating” could save households more than £300 under the January cap, taking up to £5bn off UK bills overall and cutting carbon dioxide (CO2) emissions by nearly 6m tonnes.
yabo亚博体育app下载fromCornwall Insightsays an increase in European investments in renewables in response to the current energy crisis “has resulted in lower price projections in GB” in the medium term. Plans to resurrect fracking for shale gas in the UKwill not reduce energy bills.Tony Blair Institute for Global Change.
A number of commentators, most prominently Conservative peerLord David Frost, have argued – contrary to all the evidence – that the cause of the current energy crisis is the UK’s net-zero target.
In reality, the UK’s rapid deployment of renewables has reduced our reliance on costly fossil fuels.
To put this argument in perspective, Carbon Brief calculated the cost of extra gas that the UK would have needed to buy, if it did not already get athird of its electricityfrom renewables.
The chart below shows this cost broken down by year, with renewables having helped the UK avoid the need to buy nearly £12.5bn of gas in 2022 to date, more than in any other year.避免气体costs per year, £m, thanks to electricity generation from renewable sources. The figure for 2022 includes generation through to 11 August. Source: Carbon Brief analysis. Chart by Tom Prater for Carbon Brief usingHighcharts.
The analysis shows that in 2021, the UK would have needed to buy another 253 terawatt hours (TWh) of gas, which would have raised annual demand for the fuel by 30%. For context, the UK imported 36TWh of gas from Russia in 2021.
In 2022 to date, the UK would have needed to buy an extra 164TWh of gas at a time when European countries arerushing to endtheir use of Russian exports.
Update 15/08/2022: The article was updated to with analysis of Labour’s £29bn six-month “freeze”.
Carbon Brief’s estimates of energy bills since 1970 are based onfiguresfrom BEIS, adjusted for inflation using the Treasury “deflator” and allocated per household based on figures forpopulation,household sizeand thenumber of householdsin the UK from theOffice for National Statistics.
Where necessary, for example on the number of households, figures have been projected into the future based on a continuation of existing trends. Current-year and future consumer spending are estimated based on the latestMarch 2022 forecastfrom theOffice for Budget Responsibility.
Consumer spending levels in the face of the intensifying cost of living crisis ishighly uncertain. It is also the denominator in the figures on energy’s share of consumer spending overall.
Current-year and future spending on vehicle fuels is estimated based on UKvehicle mileageandpump prices, on the assumption that Brent crude oil prices – and therefore pump prices – remain at similar levels to today. Oil prices are currently subject to even larger than usualuncertainty.
Household spending on solid and liquid fuels (predominantly oil for heating) is assumed to have risen in line with the increase in transport fuel spending.
Analysis: Why UK energy bills are soaring to record highs – and how to cut them