Average energy bills would have hit £4,279 in January
Ofgem’s latest quarterly Energy Price Cap for 1 January to 31 March 2023 has been set at an average £4,279/year for a dual fuel customer paying by direct debit.
This shows the average price households would have paid for their energy had the Government not announced the Energy Price Guarantee which caps average bills to £2,500.
Given the price differential between the regulator and the Government’s schemes, 22 million billpayers on default tariffs have been shielded from shelling out an extra £1,779, on average in the first three months of 2023.
Currently, billpayers would have paid an average £3,549 this quarter under the Ofgem scheme.
However, earlier this month as part of the Autumn Statement, the government confirmed the Energy Price Guarantee would rise to £3,000 from April 2023, and would run for 12 months.
The Chancellor, Jeremy Hunt also announced further cost-of-living payments which will be made next year to some people. Those on means-tested benefits will receive a £900 payment, pensioners will receive £300, and those receiving disabled benefits will receive another £150 payment.
Meanwhile, households who use alternative fuels such as heating oil and LPG to heat their homes, will see support doubled to £200, which will be delivered “as soon as possible this winter”.
‘Concern to government’
According to leading energy consultancy, Cornwall Insight, the Government will be concerned about the big differential as it “will be shouldering the billions of pounds needed to compensate suppliers the difference”.
It estimated that the cost to Government – ultimately paid by taxpayers – has risen from £38bn to £42bn, “even allowing for the increased in the Energy Price Guarantee from £2,500 to £3,000 a year.
Craig Lowrey, principal consultant, said: “This highlights the nature of the wholesale market risk that the Government is taking on by deciding to extend the EPG for longer than the March 2023 date, with the consequence that the full costs many be potentially higher than currently budgeted for.
“Extending the EPG for, even at an elevated level, has resulted in the Government being exposed to variables and factors over which they crucially have no control. The risk is reduced by changing the level of support but remains acute.”
Lowrey added that with millions struggling to pay energy bills, “it is essential that support is made available”, but said “it is clear the EPG is not a desirable long-term solution”.
The Government is set to review domestic energy prices, and Cornwall Insight said more targeted support for the most vulnerable is required.
“One thing is clear, I think everyone accepts that it is not tenable to go on dealing with this situation in six-month blocks of emergency measures,” he concluded.
Cornwall Insight predicts the Energy Price Cap will stand at £3,921.04 during April to June 2023, falling to £3,358.23 in Q3 then rising slightly to £3,370.90 between October and December 2023.