The possibility of a peace deal between Russia and Ukraine has caused wholesale energy bills to fall in recent weeks but household bills will still be going up from April.
Consumers will be paying for the winter months.
Europe endured a cold and still winter, meaning demand for energy increased while countries were less able to rely on wind power, so they had to draw down more heavily on their gas reserves.
European gas prices subsequently rose, hitting a two-year high of just over €58 (£48) per megawatt/hour earlier this month.
That spike has fed into the latest price cap, which Ofgem sets quarterly.
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The recent drop in the wholesale price could lead to lower prices come the summer.
However, the latest increase – the third in a row – underscores just how vulnerable Britain is to volatility in the global energy markets and, in turn, how the government’s political ambitions are being held hostage by factors outside of its control.
Labour promised it would save households £300 by 2030. Yet, bills are still higher than they were before the war in Ukraine began in 2022 – when bills averaged £1,100 a year – and the consequences of this are rippling through the economy.
Inflation impacts
Most clearly, high energy prices push up prices.
That’s because energy is used in the production of goods and services, whether that’s running ovens in restaurants or powering factories. Industrial electricity prices are already among the highest in the developing world.
The Bank of England expects inflation to hit 3.7% later this year because of rising gas prices, taking it further above the 2% target before it comes back down again. That has ramifications for our living standards.
The government says it wants to tackle this by investing in green energy at home.
Ed Miliband, the energy secretary, said today: “The way to deliver energy security and bring down bills for good is to deliver our mission to make Britain a clean energy superpower – with homegrown clean power that we in Britain control.”
The hope is this will lead to lower energy bills.
However, the plan requires time, money and reform before it pays dividends. In the meantime, the UK’s domestic energy bills are the highest in Europe and the public’s patience is wearing thin.
