Energy bills could soar by ANOTHER £700 a year if gas supplies are hit by Russia invading Ukraine

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Watchdogs are warning of a new surge in energy bills – possibly another £700 a year – if gas supplies are hit by a Russia invasion of Ukraine.

The regulator, Ofgem, told MPs yesterday that current forecasts suggest another increase is likely to come into effect before next winter.

The annual bill for a typical household is due to go up from £1,277 to £1,971 from April 1, but some industry analysts are predicting it will go up again to £2,300 from October 1.

In fact, the rise could be substantially higher if Russia invades Ukraine, which would hit gas supplies to Europe and drive up global prices.

Ofgem’s chief executive, Jonathan Brearley, said wholesale gas prices are volatile and it is impossible to make any firm predictions.

But, he said: ‘When you look at the forward prices right now, there is upward pressure in prices still, so you may see a rise in October.

‘It is really hard to say what the price cap will be if Russia invades Ukraine, but…you would see significant rises again in the price that people pay.’

He added: ‘We are not experts in geo-politics but we expect that if Russia invades Ukraine – there is a sanctions regime and that Russia limits gas supplies to Europe.

‘That would drive high price rises and that would ultimately feed through to customers.’

He did not put a figure on it, but said it ‘could be of the scale we have seen before’. If so, that might mean a second increase this year of £700.

The watchdog’s director of strategy, Neil Kenward, said: ‘What the data is telling us now, if you look at futures markets for next winter, is suggesting there could be a further increase in the price cap, but actually we don’t know that yet.

‘Over the next six months, markets will respond to events such as Russia-Ukraine and other factors and that will then determine the price cap level in the coming winter.’

Details emerged in evidence to MPs on the Commons Business, Energy and Industrial Strategy Committee, who are investigating prices.

It also emerged that the collapse of over 25 energy firms in recent months saw some £200million of customers’ money go missing. This is money people had overpaid and was being held by their supplier.

Ofgem said it will now be up to all consumers to repay this money through a levy on bills that could amount to £10.

Mr Brearley admitted that the regulator should have acted faster in testing the financial resilience of new suppliers coming into the market to make sure they would survive increases in wholesale prices.

Ofgem has put forward plans for tougher financial checks. It is also proposing to change the price cap more frequently to quickly reflect changes in wholesale costs.  

It comes as finance chiefs warned Vladimir Putin could target European and US banks with a coordinated cyber attack to inflict economic chaos worldwide if Russia invades Ukraine.

The European Central Bank has already told banks to conduct cyber war games to test their ability to fend off a potential attack, with financial regulators on high alert for a new strike.

A military invasion would likely land Russia with its own economic sanctions, but insiders fear Putin may strike first and try to disrupt the West’s economic structures.

The ECB, led by former French minister Christine Lagarde and which has oversight of Europe’s biggest lenders, has already diverted its attention from regular scams to cyber attacks launched from Russia, an insider revealed.

They added security chiefs have told European and US banks to shore up their defences in preparation for a potential hack. 

The New York Department of Financial Services also issued an alert to financial institutions in late January warning of cyber attacks, according to Thomson Reuters’ Regulatory Intelligence. 

Earlier this year, multiple Ukrainian websites were hit by a cyber strike that left a warning to ‘be afraid and expect the worst’, as Russia amassed more than 100,000 troops near their borders. 

Ukraine’s state security service SBU said it saw signs the attack was linked to hacker groups associated with Russian intelligence services. 

The Kremlin has repeatedly denied the Russian state has anything to do with hacking around the world and said it is ready to cooperate with the United States and others to crack down on cyber crime.

Nonetheless, regulators in Europe are on high alert.

It comes as it was yesterday revealed that hundreds of thousands of households will be paid to ration their electricity usage at peak times amid Britain’s cost of living crisis.

Up to 1.4million customers of Octopus Energy will be paid to cut their normal power consumption at certain two-hour periods during the day, including 4.30pm to 6.30pm, from Friday.

Officials want to try to reduce the pressure on the electricity grid and limit the amount of new capacity that needs to be build as demand for electricity rises.

The results of the trial will help the National Grid Electricity System Operator (ESO) work out how best to design and run the system as the UK ditches reliable but dirty fossil fuel plants.

Demand for electricity is set to surge in coming decades as people ditch their petrol and diesel cars for electric models and swap gas boilers for electric heat pumps or hydrogen made from renewable energy, under the Government’s net zero drive.

This will happen as coal and gas-fired power stations make way for more and more wind and solar power. 

Britons were warned last week that they face the biggest fall in living standards on record with energy bills and mortgage rates soaring on what has been dubbed ‘Black Thursday’.

Isabelle Haigh, head of National Control at ESO, said: ‘System flexibility is vital to help manage and reduce peak electricity demand and keep Britain’s electricity flowing securely.

‘This trial will provide valuable insight into how suppliers may be able to utilise domestic flexibility to help reduce stress on the system during high demand, lower balancing costs and deliver consumer benefits.’

Guy Newey, of Energy Systems Catapult, said: ‘Making the whole system more flexible is an absolutely essential part of the transition (to a lower carbon grid). How do you make the most out of your energy infrastructure? Smart tariffs and digital technology has huge potential in that area.

‘We don’t know yet how consumers are going to respond. But if a lot of it’s automated and going on in the background, and I know I’m going to get a slightly lower price, then I think we’ll find that people are pretty happy to do that.

‘And if that avoids the need to build however many gigawatts of new energy then that’s potentially a really important saving for consumers. It’s all about making the system as smart as possible and this trial seems an important step in that direction.’

James Eddison, co-founder of Octopus Energy Group, added: ‘It’s a tremendous opportunity to unlock flexibility at an unprecedented scale, and we can’t wait to get started.’

It comes after Rishi Sunak yesterday finally unveiled a £9billion cost-of-living crisis package but admitted it will hardly make a dent in the pain for families.

The Chancellor announced new help in the Commons minutes after it was revealed the energy price cap is going up 54 per cent for millions of people in April, meaning typical costs will rise £693 to £1,971.

And as he spoke, the Bank of England pushed interest rates to 0.5 per cent to control rampant inflation, which it now believes will reach 7.25 per cent in April and act like a lead weight on the economy, as well as pushing up unemployment.

It cautioned that disposable incomes are on track to fall by around 2 per cent — the worst impact since comparable records began in 1990.

Mr Sunak said A-D band homes in England will get £150 council tax rebates, while £200 government-backed discounts will help temporarily keep electricity bills lower for everyone — but must be repaid over five years.

There will also be a £150million ‘discretionary fund’ for local authorities to distribute to worse-off families.

But Mr Sunak conceded it would be ‘wrong and dishonest’ to claim that he can take away all the pain, pointing to soaring global gas costs.

He said the ‘vast majority’ of households would see a £350 benefit — but that is barely half the average energy cap increase.

‘Without Government action, this could be incredibly tough for millions of hardworking families. So the Government is going to step in to directly help people manage those extra costs,’ Mr Sunak said.

The policy had been delayed by weeks of internal wrangling with Boris Johnson and the Cabinet, after many ministers pushed for the £12billion national insurance raid to be delayed or axed.

Labour accused Mr Sunak of a ‘puny’ response and a ‘buy now pay later’ approach, arguing he is merely delaying the pain.

He was also assailed by some Tory MPs, with Peter Bone branding him a ‘socialist’ in an extraordinary barb.

Mr Sunak said: ‘We are delivering that support in three different ways. First we will spread the worst of the extra costs of this year’s energy price shock over time. This year all domestic electricity customers will receive an up front discount on their bills worth £200.

‘Energy suppliers will apply the discount on people’s bills from October with the Government meeting the cost in full, that discount will automatically be repaid from people’s bills in equal £40 instalments over the next five years.’

Alarmingly many members of the Monetary Policy Committee pushed for a bigger rates increase to 0.75 per cent. Investors are anticipating the level will reach 1.5 per cent by the end of the year.

Governor Andrew Bailey said it had been a ‘close call’ but stressed there was only likely to be ‘modest’ further increases in the coming months.

He said the Bank had not acted because the economy is ‘roaring away’, but to counter the risk that inflation is becoming ‘ingrained’ domestically. The new peak is two percentage points higher than was forecast in November.

Experts are warning the cost-of-living crisis could last years, with ministers hitting the panic button amid fears it will be even more toxic to the Government than Partygate. 

It comes as demand grows for energy firms to face a windfall tax after oil giant BP posted its highest annual profit in eight years and announced more returns for shareholders while Shell boasted of ‘momentous’ £12billion profits – and ordinary Britons endure soaring energy bills amid rampant inflation and a cost-of-living crisis.

BP revealed it swung to a mammoth £9.5 billion underlying replacement cost profit – its preferred measure – for 2021 from losses of £4.2 billion the previous year, notching up £3.01 billion of profits in the final three months alone – up from just £85.1 million a year earlier.

The company also announced more cash returns for shareholders, with another £1.1 billion of share buybacks before its first-quarter 2022 results and a dividend payout of 3.37p a share for the fourth quarter. 

And London-based energy giant Shell has increased its profits nearly fourteen-fold to £12billion, it was revealed last week. The company collected £6.55 ($8.88) for every thousand cubic feet of gas it sold to customers in the last quarter of 2021 – with gas previously selling for less than half this amount only six months earlier.

BP had recovered from a torrid 2020, when the pandemic sent it slumping £13.4 billion into the red on a statutory basis – its biggest ever annual loss.

But oil and gas prices have since rebounded as economies worldwide reopened following the early stages of the pandemic – and the results are now intensifying pressure on energy firms as they reap mammoth profit hauls while households and businesses struggle to pay energy bills amid soaring inflation. 

Calls are now growing for a windfall tax on energy giants, with Labour MPs arguing that while households are paying through their teeth for gas – energy bills are set to spike more than 50% in April – the companies which extract that gas are reporting massive profits.

Shadow secretary of state for climate change and net zero Ed Miliband tweeted: ‘BP’s results demonstrate again that it is fair and right to levy a windfall tax on oil and gas producers to help the millions of families facing the cost of living crisis. The Conservatives are completely out of step with the mood of the country in rejecting it.’

Liberal Democrat leader Sir Ed Davey described the energy crisis as a ‘redistribution of wealth from millions of people struggling to pay their heating bills to shareholders of large oil and gas firms’ which must be tackled through the introduction of a windfall tax on fossil fuel producers.