Energy regulator Ofgem has announced that the energy price cap will rise 2% for the final quarter of 2025.
This will mean that the average maximum bill that a household will face for the last three months of the year will rise by around £2.93 a month for the average household on a variable tariff.
Over a whole year, this would equate to a total of £1,755 per year for a typical household.
For the current period from July to September, the price cap fell 7% to £1,720 from £1,849 in the second quarter and £1,738 in the first three months of the year.
The price cap rise was driven by an increase in electricity balancing costs and costs associated with the extension of the Warm Home Discount scheme.
Natural gas market prices, upon which UK wholesale energy costs depend to a large extent, have been roughly flat over the past quarter.
Ofgem said it was seeing "signs of a healthier market", with more households on fixed tariffs, rising levels of switching between providers due to increased options, as well as increases in customer satisfaction and a reduction in complaints.
A fixed tariff could save more than £200 for a household compared to the new cap, the regulator notes, while paying by Direct Debit or smart pay as you go could also save money.
“In the longer term, we will continue to see fluctuations in our energy prices until we are insulated from volatile international gas markets," said Tim Jarvis, director general for markets.
"That’s why we continue to work with government and the sector to diversify our energy mix to reduce the reliance on markets we do not control.”
Why UK bills are higher
Energy minister Michael Shanks said: "We know that any price rise is a concern for families. Wholesale gas prices remain 75% above their levels before Russia invaded Ukraine.
"That is the fossil fuel penalty being paid by families, businesses and our economy.
"That is why the only answer for Britain is this government's mission to get us off the rollercoaster of fossil fuel prices and onto clean, homegrown power we control, to bring down bills for good."
While higher than some forecasts, the new energy price cap rise is "not unexpected", said analyst Ashley Kelty at Panmure Liberum, who reckons it "will continue to rise as the costs of subsidising wind power projects are passed through to consumers".
He notes that the strike price on CfDs at the latest renewables allocation round was hiked 11% to £113/MWh last month, and the increase is hoped to stimulate more demand for the AR7 wind licensing round.
Kelty supplies some context by noting that the current UK natural gas prices are around £29/MWh.
"The large increase is needed to reflect market conditions – with wind developers struggling to make returns even at these high prices."
He said the chances of the government delivering on its pledge to reduce bills by £300 "looks even more remote", adding that the cost of supporting the build-out of new renewables "not cheap".
However, this comparison is far from perfect, as the strike price under the latest CfD auction does not mean renewables are currently costing consumers £113/MWh, as CfDs are long-term contracts guaranteeing generators a fixed price per MWh over many years, generally for new projects that haven’t even been built yet.
If the wholesale power prices are above the strike price, generators pay back the difference, with many CfD-backed wind farms and solar projects having paid money back to the system operator in 2022-23 because their strike prices were far below the market price.
Network charges, balancing services and legacy subsidies make up almost half of a UK electricity bill, with gas-fired generation often setting the wholesale price for all electricity.
While wholesale gas prices have fallen back to where they were in 2020, electricity is still double the 2020 average, largely because of how the UK market prices power using the marginal pricing system.
And bills are not lower due to rising non-commodity costs, especially network charges, balancing services, and policy levies.
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