Household energy bills in the UK are expected to peak next spring at an average of more than £4,420 a year, bringing a “new shock” to households already experiencing a cost of living crisis.
Energy consultancy Cornwall Insight on Tuesday raised its forecasts for the UK price cap following an announcement by energy regulator Ofgem controversial changes how the level is calculated.
The latest forecasts are likely to put fresh pressure on Conservative Party leadership contenders Liz Truss and Rishi Sunak to offer more support to households this winter.
The opposition Liberal Democrats have called for the next increase in the price cap, which is scheduled for October 1st. not passed on to consumers — with the difference funded by an increase in the government’s recent windfall tax on oil and gas producers. Oil and gas companies like BP and Shell have made record profits from the high prices.
Cornwall Insight, which is among the UK’s most accurate forecasters at home energy warned the price cap could rise from the current average of £1,971 a year to £3,582 in October – an increase of more than 80 per cent. The cap would then rise to £4,266 in January before peaking at £4,427 in April next year, according to estimates.
The UK energy price cap imposes a maximum amount that suppliers can charge per unit of energy and also limits their profit margins. It affects the vast majority of households in the country – some 24 million out of an estimated 27.8 million – who do not have fixed-price contracts. The price cap for October will be announced by Ofgem on August 26th.
Cornwall Insight has revised its estimates sharply upwards following methodological changes announced by Ofgem last week, which will allow utilities to recoup the full cost of buying energy for their customers for the coming winter at what are currently high wholesale prices. Before the changes, Cornwall Insight had forecast that the cap would reach around £3,600 a year in January.
Ofgem insisted it must make changes to the price cap to avoid another string of energy company collapses. More than 30 energy traders have gone bankrupt since January 2021. The costs of dealing with these errors are expected to exceed £4bncollected via a levy on household energy bills.
Investec was the first to warn last week that Ofgem’s adjustments could force January’s price cap to over £4,200 a year on average, although the regulator at the time insisted the forecast was “a far cry” from its own “working estimate”. the upper limit of the price could be in early 2023.
Ofgem said in response to Cornwall Insight’s figures that “the wholesale market continues to move extremely quickly so no forecast for next year is robust at all”.
“We cannot prevent others from making predictions, but we ask that extreme caution be exercised in any predictions for the price cap in January or beyond,” the regulator added.
Craig Lowrey, principal adviser at Cornwall Insight, acknowledged the latest forecasts would come as a “new shock” to households already worried about how they will make ends meet this winter.
He suggested that it “might be time” to reconsider the energy price cap altogether. “If it doesn’t control consumer prices and hurt suppliers’ business models, then we have to question whether it’s serving its purpose – especially in times of unprecedented energy market conditions,” he said.
https://www.ft.com/content/c8ed3448-3c00-4ece-a763-ca248e54defc UK household energy bills are expected to exceed £4,420 a year