Household energy bills are set to rise to more than £3,000 a year next January, putting further pressure on cash-strapped Britons in the coldest month of the year.
Energy specialist Cornwall Insight has forecast that the price cap could rise to £2,980 when it is next updated in October, and rise again in January to £3,003 per annum, when power demand is at its peak.
This is contingent on Ofgem reforming the cap to a quarterly mechanism, with the watchdog revealing a trend query earlier this year.
Ofgem has argued that this will ensure that consumers feel the benefit of lower energy prices faster.
However, with Cornwall Insight grimly predicting high energy prices by 2024, it leaves households exposed to the painful potential of continued increases.
Cornwall Insight Price Cap Forecasts
It has improved its estimates from earlier this month by around £100 for the next two possible peak price windows.
This comes after Ofgem chief Jonathan Brearley warned Parliament that the price ceiling is likely to rise to at least £2,800 a year this autumn, and rising tensions in Europe, with Russia beginning to cut gas flows to the mainland, raising the possibility of supply shortages.
Gazprom has already cut deliveries to Germany, Italy and Austria, and several countries have put forward contingency plans that could eventually lead to European governments dictating the provision of supplies.
Cornwall Insight is still forecasting a drop in the cap in the summer of 2023, but its predictions have risen in absolute terms over the past few weeks in all periods, reflecting higher wholesale prices in the traded market.
Dr Craig Lowrey, Principal Consultant at Cornwall Insight, said: “With geopolitical events in Russia causing significant barriers to energy flows and the situation showing no signs of abating, we unfortunately predict that average consumers will face a bill of more 50 percent more than the existing limit, itself an unprecedented increase.”
“While the UK gets very little power from Russia, ultimately the countries that do get it are looking for alternative sources of gas. This will affect power flows to the UK from mainland Europe and cause further market volatility, adding further upward pressure to prices.”
Regulator struggles to fix damaged energy sector
The government has unveiled a £15 billion support package for households, which will provide vulnerable energy users with up to £1,200 per year in savings on their bills.
However, the industry remains in crisis with Ofgem announcing a series of reforms to improve the energy sector and make providers more resilient to market shocks.
This includes suitable person rules, stress tests, market stabilization charges and, more recently, protections for credit balances.
However, it has stopped short of requiring companies to protect 100 percent of balances, and providers are hotly debating the issue.
Power bills are already at record levels, climbing to £1,971 a year in April, boosted by recovering power demand and supply shortages that have pushed wholesale costs to record highs.
Wholesale prices reached £8 per therm in March, when the US and UK imposed sanctions on Russian energy supplies, and remain high at £2.15 per therm.
UK gas prices remain historically high (Source: ICE)
For context, prices were around 48 pence a therm at this time last year on the UK benchmark.
This has contributed to a serious carnage in the market, which has caused the collapse of 29 providers since September, directly affecting more than four million customers.
Energy companies have also been constrained by the price cap, which before the recent rise to £1,971 per year in April, prevented companies from passing on high prices to customers.
Bulb Energy, the UK’s seventh-biggest supplier, was the biggest casualty of the crisis: it became the first energy company to fall under special, taxpayer-backed administration in the biggest state bailout since RBS in 2008, currently estimated at over £3 billion. .
The company is subject to a bidding war between several energy companies, and AM City understands that Octopus Energy, Centrica and Masdar are vying for the fallen provider and its 1.6 million customers.
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