Household energy bills to edge up next year despite falling wholesale prices

Funding nuclear power projects and discounts to some households’ winter bills were driving the price cap change, the regulator said.

Household energy bills will rise slightly from January after increases to Government policy costs helped offset falling gas prices, Ofgem said.

Funding nuclear power projects and discounts to some households’ winter bills were driving the price cap change, the regulator said.

The 0.2% increase from the current cap will take effect from January 1 for households in England, Wales and Scotland on standard variable tariffs.

It means energy bills will rise by about 28p a month for the average household paying by direct debit for gas and electricity.

This amounts to an overall bill of £1,758 a year, up from the current £1,755.

Higher electricity rates per unit have driven the latest change, while gas rates will fall slightly – meaning that households who use electric heating could see the biggest impact.

Ofgem’s price cap sets a maximum rate per unit and standing charge that customers can be billed when they are not on a fixed tariff.

It does not limit total bills because households still pay for the amount of energy they consume.

The surprise uplift comes after forecasters at Cornwall Insight said they expected prices to fall by 1% because of lower wholesale energy prices.

Ofgem said wholesale prices – which make up the largest portion of bills – were currently stable and have fallen by 4% over the past three months.

But conditions remain “volatile” with unpredictable global events meaning prices could change.

The latest price cap change was driven by Government policy costs and operating costs.

That includes funding the Government’s Sizewell C nuclear power plant in Suffolk – with an average of £1 added to each household’s energy bills per month for the duration of the £38 billion construction.

An increase to standing charges – the amount consumers pay per day to have energy supplied to their homes – is also largely due to costs linked to the Government’s Warm Home Discount scheme.

Around 2.7 million more low-income households, including 900,000 families with children, are eligible for the £150 discount this winter.

Standing charges are set to rise by 2% for electricity and 3% for gas or 2p a day, from January 1 to March 31.

Ofgem also said that operating costs will go up as a result of it changing how it calculates typical energy consumption, which it said better reflects current usage and is fairer to suppliers.

But Ofgem said that, when adjusting for inflation, the new price cap is £37 lower than between January and March in 2025.

Tim Jarvis, director general of markets for Ofgem, said: “While wholesale energy costs are stabilising, they still make up the largest portion of our bills which leaves us open to volatile prices.

“That’s why we’re working with government and industry to boost clean energy and reduce our reliance on international sources we can’t control.”

Think tank Resolution Foundation said a rise in the costs of Government policies being added to energy bills was cancelling out a slight fall in gas prices.

Its principal economist Jonny Marshall said: “The unexpected and unwelcome rise in the energy price cap comes when Britain is at its coldest, with nearly half of all annual gas is consumed in the first three months of the year.

“The Chancellor should help families struggling with the cost of living in her upcoming Budget by taking some policy costs off electricity bills and onto general taxation.

“This would cut typical bills by around £160 a year, bring inflation down by 0.3 percentage points, and reduce the extent to which gas is cheaper than electricity.”