Average energy bills could fall below £2,000 this summer
Dual fuel households paying by direct debit would be forking out an average of £4,279 a year from 1 January to 31 March 2023 under the regulator Ofgem’s energy price cap.
However, 22 million billpayers on default tariffs are cushioned from the full force of soaring costs under the Government’s Energy Price Guarantee which superseded the earlier energy price cap.
The guarantee takes average bills to £2,500, though many will pay more than this as the actual price paid is based on household usage and the guarantee only caps the standing charge and unit rates. It will rise to £3,000 from April 2023.
But according to energy consultancy Cornwall Insight, its revised predictions suggest energy bills will fall to £3,208 from April, and will decrease further to approximately £2,200 for July-August, and September to December 2023.
This forecast for summer is £600 a year lower than its previous prediction issued earlier this month “due to the recent slide in wholesale energy market”.
But this time, it also includes a plus or minus 10% upper and lower range to the calculations. As such, if energy prices were 10% lower than its current predictions, typical bills could fall below £2,000, down to £1,981 from July.
Either way, it means the actual price predicted in the second half of 2023 remains below the Energy Price Guarantee so it “will not cost the Government any money from July”. The Government currently compensates suppliers with the difference between its own guarantee and Ofgem’s energy price cap.
Wholesale costs down but volatility remains
Cornwall Insight said the energy market outlook had “improved markedly from last year”, and the mild winter and higher storage levels in Europe led to substantial falls in the wholesale rate.
But it added that prices remain “very volatile” and the price cap for beyond summer 2023 is still a fair distance away. Wholesale prices are expected to move daily so forecasts “should be viewed in that context”.
Craig Lowrey, principal consultant at Cornwall Insight, explained: “Falling wholesale energy prices are the main contributor to the predicted drop in the cap forecast. But these falls will not have their main effects until July 2023 as energy suppliers typically buy their energy ahead of time (hedging) to comply with the cap. This means falling day-to-day wholesale prices (spot prices) have a limited impact in the short-term.”
He added that with wholesale prices still well above pre-pandemic levels, the lower cost of the EPG scheme is “likely to spark conversation on the additional energy bill support the Government may now be able to offer households”.
Lowrey said: “First and foremost, in the period April to June (Q2 2023) not only does the EPG threshold rise from £2,500 to £3,000 for a typical household, but the £400 Energy Bill Support Scheme ends – both doing so at a time when our forecasts indicate that the Default Tariff Cap will be £3,200.
“Thereafter, the political debate is likely to centre on household bills remaining about double the level that they were prior to the recent crisis, but with much less support available. We anticipate a particular emphasis on what this means for lower income and lower middle income households. Of course, by this stage the Government may have developed more enduring reforms to tariffs to address these challenges.”