Energy bills for households are set to fall in 2026 despite a rise in the price cap kicking in on Thursday and new government green levies being introduced, analysts have forecast.
Many homes are likely to see a slight rise in energy bills on 1 January after the regulator Ofgem hiked the price cap by 0.2 per cent, or around 28p per month, meaning average bills on the standard variable tariff will go up from £1,755 to £1,758 a year.
But experts at Cornwall Insight have predicted that energy bills will fall by around £138 – or 8 per cent – to £1,620 a year when the cap is next updated as a result of changes announced in the Budget, with further falls expected in July.
Chancellor Rachel Reeves announced that £150 would be cut from the average household bill from April by moving green levies off bills and into general taxation and abolishing the Energy Company Obligation (Eco) scheme introduced by the Tories to insulate people’s homes.
A wider fall in wholesale energy prices in recent weeks has also contributed to the expected drop in bills from April.
Dr Craig Lowrey, Principal Consultant at Cornwall Insight, said: “Households will welcome a cut in April, bringing the cap to its lowest level since 2024. That’s a step towards the government’s £300 reduction target by 2030 and will ease some pressure on both families and policymakers.
“But we need to be clear – costs aren’t vanishing, they’re shifting. Moving the Renewables Obligation from bills to taxation may feel like a win, but ultimately, it’s still going to be paid by the public.”
Further bill rises averted next April
The news comes as the Government is expected to publish its £15bn warm homes plan in the coming weeks, which will aim to further drive down the cost of electricity as it seeks to meet its net-zero targets.
Officials are understood to be in talks with energy suppliers about shifting savings from the scrapped Eco scheme entirely onto electricity bills to further drive down the cost of electricity, which is around four times more expensive than gas.
The i Paper understands that there are deep concerns at the very top of government over the cost of electricity, particularly as it seeks to move more people away from using gas in order to meet its net zero targets.
Thursday’s increase in the price cap, which was announced in November, was being driven by additional costs added to consumer bills to pay for new nuclear power projects, as well as major upgrades to the grid to boost electricity transmission.
This included 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.
Cornwall had forecast further bill rises in April, but decisions in the Budget have led to a reversal in outlook for bills, meaning they will now be at their lowest level on average for two years.
An industry source said Downing Street was increasingly concerned about another set of bill rises just before a crucial set of local and regional elections in May.
“No10 basically realised that people’s bills were going to go up by £100 or so just before the elections, so they said there had to be some cuts,” the source said.
Ministers will seek to drive down cost of electricity
As such, ministers are looking at ways to lower the cost of electricity, which is expected to be a centrepiece to Energy Secretary Ed Miliband’s warm home plan, due in January.
One of the methods being considered is to shift the entire saving from scrapping the Eco scheme onto electricity bills, while also ramping up subsidies for households to fit solar panels. This could including deregulation to allow a greater take up of plug-in solar panels that can be used on balconies and patios without specialist fitting.
Jack Richardson, head of policy at Octopus Energy, said: “The cut to the energy company obligation would result in around a £60 cut to energy bills, so £30 off gas and £30 off electricity. I think what the Government is thinking about is talking to energy suppliers so they can put all of that £60 saving onto electricity bills.
“So, while it would mean a marginally smaller cut – although still a big cut overall – for the 85 per cent of homes with gas heating, it will mean an even larger cut for homes with electric heating. This includes some of the poorest homes that rely on electric storage heating and are being hit massively by these levies.”
According to Octopus Energy, a plug-in solar panel can typically save a household around £180 a year on electricity costs.
It comes as energy suppliers have warned that energy bills are likely to go up in the coming years due to the cost of decarbonising the grid, including the construction of new wind and solar farms and further upgrades to the grid.
Lowrey added: “The transition to net zero isn’t cheap, but it’s the only route to genuinely lower bills in the long term. Turning back now might look tempting, but in the long run it would continue to leave consumers exposed to the same volatile global markets that contributed to the energy crisis. Staying the course on clean energy is the sustainable choice, but admittedly not the easiest or most politically expedient.
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“Crucially, as we move forward, vulnerable households must be protected. Cutting bills today is welcome, but without targeted support and a clear plan for fairer funding, the benefits of net zero could bypass those who need them most.”
A Department for Energy Security and Net Zero spokesman said: “We are investing an additional £1.5 billion into our Warm Homes Plan, taking it to nearly £15 billion – the biggest ever public investment to upgrade homes and tackle fuel poverty ever.
“We are doubling down on support for home upgrades and will set out our plans to help households, and support thousands more clean energy jobs, soon.”
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