Households could see their energy bills increase to over £1,000 in the next few months after npower confirmed its 4 million customers face bill hikes of up to 17.2% in 2008.
In 2007 the average household paid £924 for gas and electricity but the rising cost of wholesale gas means this is now forecast to rise to £1,063 in 2008, according to watchdog Energywatch.
In the first energy price rise for a year, npower says that from 5 January its domestic electricity customers will see bills increase by 12.7% while gas customers will pay 17.2% more.
This translates as £64 more a year for the average electricity customer or £95 more for the average gas customer.
Customers paying by pre-payment meters will see lower average price increases of 9.8% for electricity and 15.7% for gas
Npower's announcement follows British Gas’ warning in December that its 16 million customers may face energy bill increases in 2008.
Experts predict that other energy companies will announce price rises of 15% in the next couple of months.
The reason for the hikes is the rising cost of crude oil which has pushed up the price energy providers pay for wholesale gas. In addition, npower says all energy suppliers are facing higher transmission costs.
Giuseppe Di Vita, managing director of npower’s residential business, says the decision to rise prices was not easy one to make.
Di Vitta adds: “We always try to protect our customers for as long as possible but sadly higher energy prices are a fact of life."
But figures from theenergyshop.com reveal that the cost of wholesale gas now is still much lower than it was in 2006 - even though the price consumers pay for their energy is higher.
Joe Malinowski, founder of theenergyshop.com, says the figures also show that when wholesale gas prices fell steeply between early 2006 and early 2007 providers did not fully pass on the savings to their customers.
He says: "Any increases in the price of household energy is a concern for the government and it may well investigate, but consumers can protect themselves against hikes by choosing a fixed rate or capped product, or opting for price protection. There are still some competitive deals out there, and for npower customers it's a no brainer to move to a new provider now."
Although Malinowski doesn't believe other providers will follow in npower's footsteps, others disagree.
Di Vitta says: "Npower is not alone in facing these higher costs, and we expect other suppliers to follow suit very shortly."
And Paul Green, chief executive of Energyhelpline.com, says: “This year we can expect customers to see between two and three price rises during the course of the year, due to the volatility on the wholesale markets.”
Energy price rises can have a devastating impact on those whose finances are already stretched, such as the elderly.
Mervyn Kohler, of Help the Aged, says: “Even a 1% rise in fuel bills plunges around 40,000 people into fuel poverty - so rising fuel bills are bad news for a lot of older people.
“When older people are living in fuel poverty they have to make very difficult choices, often between whether to eat or whether to heat their home. Rising fuel prices and the Government's admission in early December that it is likely to fail to eliminate fuel poverty by 2011 means this is very worrying indeed.”