The energy price cap increased again in the latest announcement, a rise Energy UK described as coming "paired with the announcement of yet another increase in the energy price cap" alongside the Government's publication of the first major step in its Warm Homes Plan1. Ember put the increase at 1.2% and attributed it to rising gas costs2.
Energy UK, the industry body, published its assessment on 22 November 2024, a day after it said the Government had published the first major step in the Warm Homes Plan, with "ambitions that up to 300,000 homes will benefit from upgrades next year"1. It said the plan included "the introduction of a Clean Heat Market Mechanism to incentivise manufacturers to sell more heat pumps over time, although much weakened since the former Government's proposals in 2022"1. On funding, Energy UK said the Autumn Budget included an announcement of £3.4 billion, but that this was "primarily a reiteration of spending that was committed by the then-Chancellor Jeremy Hunt in the 2023 Autumn Statement"1. It said Labour had pledged an extra £6.6 billion over this Parliament, bringing total expected spend on Warm Homes to £13.2 billion, and that a £20 billion commitment to the party's Green Prosperity Plan was scrapped last year1.
"Gas prices have been rising throughout 2024 and this is driving up electricity prices."
Ember, an independent energy think tank, said the cost of generating electricity using gas averaged £77/MWh in 2024, 80% higher than the pre-energy crisis average of £43/MWh recorded between 2017 and 20202. It said that since January the average cost of generating electricity using gas had risen by 35%, and that a 20% increase in day-ahead wholesale gas prices from mid-August to mid-November coincided with the latest assessment period for the cap2. During that period, it said, the average cost of generating electricity using gas was 14% higher than the previous assessment, increasing from £78 to £882.
Energy UK said the Climate Change Committee's 2024 Progress Report to Parliament identified households receiving energy efficiency measures, heat pump installations and trained heat pump installers as "significantly off track"1. It said there were less than half the number of heat pumps installed in 2023 than were needed to keep the UK on a pathway to Net Zero, and that in the four years since 2020, 190,000 fewer heat pumps had been installed than required1. It described the Energy Company Obligation (ECO) as the longest running fuel poverty scheme in Great Britain, delivered by energy suppliers and regulated by Ofgem, and said ECO schemes had delivered 26,000 heat pumps and 30,000 solar PV installations, with lifetime carbon savings of 58.2 MtCO2e1.
Why it matters for households
The cap sets the maximum a supplier can charge per unit of gas and electricity on a default tariff, so the 1.2% increase feeds directly into what a household pays for each unit it uses2. Ember's figures show the mechanism behind that: gas remains the price-setting fuel in the power market, so when wholesale gas rises, electricity prices follow, even for homes that use little gas directly2. Energy UK's figures point to the other side of the same problem, a housing stock it describes as some of the oldest and least efficient in Western Europe, which it says was one of the key reasons the UK was affected so badly by the energy crisis1. For a household, the two combine: a higher unit price multiplied by a home that loses heat quickly. Energy efficiency measures and clean heat installations reduce the volume of energy a home needs to buy, which is the part of a bill a household can influence, while the cap determines the price of each unit, which it cannot. Energy UK said ECO has generated lifetime carbon savings of 58.2 MtCO2e and that 20% of ECO measures installed since 2022 have been in households identified by local authorities as in need of support1.
What happens next
Energy UK said there is widespread expectation that the Spending Review in late spring will provide more clarity about funding available and the types of capital schemes the Government will use1. It said upcoming consultations are needed on EPC reform and minimum energy-efficiency standards, on policy cost rebalancing, promised over two years ago, and on the Future Homes Standard, first announced in 20211. It also called for clarity as soon as possible on post-2026 arrangements for ECO to avoid a hiatus in retrofit delivery1. No date has been reported for the next price cap announcement.
Sources2 cited
- Putting people first in a Warm Homes Plan - Energy UK, energy-uk.org.uk
- Rising gas costs drive up GB electricity prices | Ember, ember-energy.org