Energy bills to breach £4,000 come January
The default tariff cap for 24 million people is forecast to rise to £4,266 a year for the three months to March 2023, according to leading energy consultancy, Cornwall Insight.
Just last week, it estimated bills would rise to £3,616 so today’s revision sees billpayers fork out £650 more.
Cornwall Insight has also revised the forecast for the October energy price cap by £200, with bills set to reach £3,582.
The energy price cap – set by regulator Ofgem – is a maximum suppliers can charge per unit of energy, but it isn’t a limit on bills as it’s based on usage. In April, it rose just shy of £2,000 a year.
The consultancy said its increase in forecasts reflects the increase in wholesale costs as well as a change in the calculation method as regulator Ofgem last week confirmed it would move to a quarterly rather than bi-annual energy price cap updates.
Dr Craig Lowrey, principal consultant at Cornwall Insight, explained: “In its initial proposals from May, the regulator stated that an element of supplier costs associated with wholesale market hedging would be explicitly included within the cap methodology and would be recoverable over a 12-month period.
“However, in the consultation documents released last week, it was confirmed that these costs would be recoverable over a six-month period – resulting in higher bills than previously forecast for the crucial January cap.”
He added: “We note Ofgem’s concerns in agreeing to the application and structure of these additional backwardation costs, as these reflect the suppliers’ wholesale energy trading requirements and recovery of these is essential to help avoid more supplier failures.
“If the wholesale market remains unchanged, this change in methodology should result in lower bills in the second half of next year than we had previously forecast. These new forecasts for the January to March 2023 quarter further underline the need for support for households who will struggle to pay their energy bills this winter.”
Time to reconsider the energy price cap?
Turning to criticism over the timing of the increase in the energy price cap, Lowrey said that it comes as many energy suppliers are under financial pressure, with some currently making a loss.
As the costs of supplier failure is ultimately met by energy billpayers, “a change which means that this is less likely is welcome, even if the timing of it may well not be”, he added.
However, Lowrey said that it may be time to “consider the cap’s place altogether”.
He said: “After all, if it is not controlling consumer prices, and is damaging suppliers’ business models, we must wonder if it is fit for purpose – especially in these times of unprecedented energy market conditions.”
And given the government’s £37bn cost of living support package, the consultancy said that with its revised forecast “if the £400 was not enough to make a dent in the impact of our previous forecast, it most certainly is not enough now”.
It said the government’s number one priority should be to introduce more support over the first two quarters of 2023, such as a social tariff or other support mechanism to target support at the most vulnerable in society.
“Right now, the current price cap is not working for consumers, suppliers, or the economy,” it added.
The revised forecasts come as Liberal Democrat leader Ed Davey called for the winter energy price cap hike to be cancelled, with an ‘energy furlough’ scheme in its place to help the millions of people who will face a “cold and hungry” few months.