How much will your energy bill rise by in April?

After weeks of unseasonably mild weather, temperatures across the UK have plummeted to levels more typical for this time of year.

Even if you're already feeling the chill, you'll probably be all too aware that whacking up the heating costs far more than a year ago.

Worryingly, if it wasn't for the Government's Energy Price Guarantee we'd all be facing even higher bills this winter. Sadly, however, this state-supported subsidy is going to be scaled back in just four months. This'll mean that, for most, heating our homes will become even more expensive next year.

Here's everything you need to know about the current UK energy market. And how much average households can expect to pay for their energy from April 2023 onwards.

What is the Energy Price Guarantee?

The Energy Price Guarantee (EPG) limits the amount suppliers can charge per unit for their energy. The EPG applies to England, Scotland, and Wales. It doesn't cover those living in Northern Ireland.

Under the EPG, a typical household with average energy usage pays roughly £2,500 per year. We say 'roughly', because the guarantee doesn't fix the cost of bills. Only the cost 'per unit' of energy is capped. This means the more energy you use, the more you pay.

Under the EPG the cost of energy is capped at 34p per/kWh, while the daily standing charge is limited to 46p. For gas, the cap is 10p per kWh and the daily standing charge is 28p.

How is the Energy Price Guarantee funded?

The EPG is funded by the Government. This means that the state is paying energy suppliers the difference between wholesale energy costs and the EPG.

It's worth knowing that when the EPG was announced the Government came under fire for not passing on the cost to the fossil fuel industry. Because additional windfall taxes were not implemented, many have argued that future generations will now have to pick up the tab.

Initially the EPG was set to cap average energy bills at £2,500 per year for two years. However, due to worries about the cost of the scheme, and a rejection from the markets of Lizz Truss' economic policies, the current EPG will only last until 31 March 2023.

How much will average energy bills cost from April 2023?

From 1 April 2023, the current EPG will be less generous with average households facing bills of £3,000 per year. This compares to the current level of £2,500.

According to Government figures, the EPG will still save households £900 per year after taking into account Ofgem's energy price cap which would have capped average bills to £4,279 per year from 1 January.

While April's EPG will be less generous, it will stay in place for 12 months. This means that households shouldn't face unexpected hikes in their energy bills for a whole year. However, should wholesale energy costs continue to spike then the Government will be facing an even higher bill for the scheme.

While nothing has officially been announced, Rishi Sunak's current Government has hinted additional, targeted support will be available to the most vulnerable consumers from April next year.

What's the deal with the Energy Price Cap?

The Energy Price Cap was introduced by the independent energy regular, Ofgem, in early 2019.

Prior to the cap being introduced, it was commonplace for energy suppliers to charge Standard Variable Tariff (SVT) customers far more for energy compared to those on a fixed deal. Many customers stuck on expensive SVTs included those who didn't have the nous or ability to switch suppliers. This the main reason why the cap was introduced in the first place.

Yet thanks to soaring whole energy costs, the purpose of energy price cap has been turned on its head.

Rather than being a clunky way of preventing vulnerable consumers from being ripped off, it soon became the maximum amount we were all paying for our energy (except those on renewable tariffs as the cap doesn't apply).

As mentioned above, the energy price cap would have been £4,279 per year from 1 January. However, thanks to the temporary 'Energy Price Guarantee' the Energy Price cap has now taken a backseat. In other words, it's largely irrelevant for now as the Government is swallowing the extra cost.

What other support is available to help with bills?

UK households are already receiving £400 towards their energy bills this winter in the form of six monthly payments. This money is paid directly to suppliers.

On top of this there's a £650 payment for those on means-tested benefits. Meanwhile, there's a £300 Winter Fuel Payment top-up for those who qualify for it.

Off-gas grid households, such as those relying on heating oil or liquefied petroleum gas, can also receive £100.

See the Gov.UK website for all of the energy bills support available.

Why have energy prices risen so much?

There's no doubt that the war in Ukraine has had a massive impact on whole energy costs. Europe is slowly, but surely, weaning it's way off Russian fossil fuels, which is pushing up prices.

However, it's worth knowing that there are other factors at play besides the conflict in Eastern Europe.

We mustn't forget that the world is still emerging from a once in a lifetime pandemic. Because of this, demand for oil and gas has soared this year as economies undertake rebuilding efforts. Last year, the world suffered a colder than usual winter too, which has also had a negative impact on reserves.

The drive towards renewable energy is another fact that should also be considered. Put simply, what's better for the planet isn't always great for our wallets (in the short-term at least). Right now, we're all paying the price for this transition, though the long-term benefits will surely be worthwhile!

Sadly, without some good news in Ukraine, or a huge reduction in demand, higher energy prices are probably here to stay. While the Government is subsidising the cost for now, such support is unlikely to be sustainable year after year.