Energy crisis: Households braced for £500 annual bill hike as falling gas prices miss price cap deadline
Households face a hefty hike to their energy bills in April, predicts Cornwall Insight, after it warned that the price cap would not fall below the reduced subsidy rate in time for Ofgem’s next update later.
Cornwall Insight expects the price cap to fall from its current record rate of £4,279 per year to £3,294 for the three-month window.
This would be a steep drop off from current levels, but would still be historically very high – with the price cap moving between £1,000-£1,200 per year prior to the industry crisis that saw 30 suppliers collapse and Russia’s invasion of Ukraine which drove gas prices to record highs.
The energy specialist expects the price cap to drop heavily in the second half of the year, when the fall in gas prices will be reflected in season-ahead contracts and hedging – which is how suppliers typically buy energy for customers.
However, this will not be in felt in time for the second quarter update, meaning a challenging period awaits households this spring.
Ofgem is set to announce the cap for the second quarter of the year on February 27, establishing the maximum price for an average energy user on a standard variable tariff from April to June.
With the price cap expected to remain above the subsidy rate of £3,000 per year for the Energy Price Guarantee (EPG) – with Chancellor Jeremy Hunt hiking the protection levels for average bills from £2,500 per year for the next 12 months – many customers will have no choice but to swallow the £500 hike.
Households are also set to lose out on the £400 saving provided by the Energy Bill Support Scheme, meaning an average £900 per year hike in energy bills is on the way.
Dr Craig Lowrey, principal consultant at Cornwall Insight said: “Regrettably the forecast for April looks set to leave the price cap above the increased Energy Price Guarantee level, meaning average annual consumer bills will effectively jump 20 per cent.
“However, this is before we take into account the end of the £400 energy rebate scheme in March, meaning that the cost of energy for households will increase by even more. While tumbling cap projections are a positive, unfortunately, already stretched households will be seeing little benefit before July.”
Cornwall Insight calculates that the lessened support from the EPG will save the government £2.6bn across the entire scheme.
Based on projected gas prices, if the EPG were to increase to £3,000 per year as planned, the estimated package total would be £26.8bn while if it were to remain at £2,500 per year, the predicted cost for the energy support policies would be £29.4bn.
This is because when the EPG is lower than the price cap, the government has to pay suppliers the difference.
It is currently calculating the price cap will fall to £2,362 in the third quarter, and remain lower at £2,389 per year in the winter.