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Energy bills to hit average £3,700 from April once guarantee ends

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Households are likely to see typical energy bills of £3,702 a year from April once the Energy Price Guarantee comes to an end, according to forecasts by a leading consultancy.

Currently billpayers are cushioned from the full force of soaring wholesale costs due to the Energy Price Guarantee introduced by former Prime Minister Liz Truss.

Originally it was expected to run for two winters following its introduction in October 2022. But the government recently said it will be reviewed in April 2023, casting doubt on future energy bills for millions of people.

Research firm Cornwall Insight has now revised its forecasts and predicts the average household will pay £3,702 a year from April, down from the £4,347.69 it forecast for the period just last month.

While this is £600 less than its previous prediction, and forecasts for the latter two quarters of 2023 have also shown significant reductions, the consultancy said that despite falls, wholesale prices remain “well above historic levels”.

And they also remain significantly above the average £2,500 figure under the government’s Energy Price Guarantee (EPG). However, as this is based on average bills and the actual figure paid by households will be based on energy use as well as standing charges and unit rates, Cornwall Insight has also made predictions on unit rates.

It suggested the electricity unit rate will come in at 66.76p/kWh which compares to 34p/kWh under the EPG, while the figures for gas are 17.05p/kWh and 10.30p/kWh respectively.

Taken together, Cornwall Insight said as costs will remain much higher than the current £2,500 cap for average bills, “it will likely prompt calls for greater government intervention”.

“With the enduring nature of support for household energy bills up for review in early 2023, the potential for volatility in energy bills will need to be addressed as part of any ongoing measures established,” it said.

Why aren’t wholesale falls filtering through to lower bills?

Wholesale prices have fallen by around a quarter since the highs seen in August 2022. But given the nature of energy supplier hedging under the cap, it means they have largely been unable to take advantage of this drop.

Dr Craig Lowrey, principal consultant at Cornwall Insight explained: “The structure of the cap methodology is such that suppliers are implicitly encouraged to purchase the demand requirements of their customer base in advance through hedging on the forward market, meaning that suppliers will typically not have been able to take advantage of the full extent of the declines seen over the last couple of months.

“As such, even though wholesale prices on the prompt market have fallen considerably in recent weeks – as have those for periods in 2023 and beyond – this is not reflected in the cap forecasts for Q1 23.”

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