Household energy bills to stay high into next winter despite price cap dip
Households energy bills are expected to remain above pre-crisis levels over the next 12 months, despite Ofgem being on course to announce a fall in the price cap this winter.
Cornwall Insight, which oversees a closely-watched market forecast, predicts Ofgem could unveil a drop between £150-250 drop in the mechanism on Friday.
It estimates the price cap will slide from £2,074 per year to £1,925 per year with the current pricing formula.
The forecasters anticipate it would have fallen to £1,823 per year, based on the updated methodology kicking in from the next quarter.
However, it does not expect the cap to decline further next year, meaning customer bills will remain historically elevated deep into 2024, rather than returning to pre-crisis levels.
Cornwall Insight attributes higher prices to spooked investor sentiment causing a gas price surge in Europe, driven by the threat of strikes at LNG facilities in Australia alongside Russia’s sustained supply squeeze on gas flows into the continent.
The forecaster expects this will lead to an increase in the cap for January to March 2024 to £1,979 per year, which it expects to then dip to £1,915 per year and £1,867 per year in the following two quarters.
Prior to the domestic energy crisis which saw the collapse of 30 suppliers and Russia’s invasion of Ukraine, the price cap typically hovered between £1,000-£1,200 per year.
The price cap establishes the maximum a supplier can charge for average energy usage, and has become a default cost of energy for millions of customers amid soaring wholesale costs – even after gas prices eased.
Dr Craig Lowrey, principal consultant at Cornwall Insight, renewed the group’s calls for more support to be offered to customers – with the support packages that shielded business and households last winter wrapping up last month.
He said: “While a small decrease in October’s bills is to be welcomed, we once again see energy price forecasts far above pre-crisis levels, underscoring the limitations of the price cap as a tool for supporting households with their energy bills.
“As many, including energy regulator Ofgem have acknowledged, it is essential that the government explore alternative solutions, such as social tariffs, to ensure stability and affordability for consumers.”
This echoes calls within the wider industry with Utilita chief Bill Bullen calling for £6bn of support for up to 10m people to be funded through scrapping legacy renewable contracts.
Philippe Commaret, managing director for customers at Big Six supplier EDF, told Morning Wire the company was seeing a worrying rise in customer debt ahead of winter.
“It is important to protect those most in need against the extremes of the global energy markets, providing affordable access to energy. We will be stepping up what support we offer, and the vulnerable need government to act in parallel,” he said.
When approached for comment, a Department for Energy Security and Net Zero spokesperson said: “The outlook for energy prices has improved significantly since the Autumn Statement, which is good news for households who have seen their energy bills come down. The government continues to monitor the situation and will keep options under review, including with respect to the most vulnerable households.”