Already facing a £139 jump in their energy bills from next week, households should brace for an even more onerous hike when the price cap is next adjusted in April, two energy consultants are warning.
Surging natural gas and electricity prices could push Ofgem to add £178 to the energy price cap from 1 April, energy consultancy Cornwall Insight has calculated. That would take the typical cost of a standard variable dual-fuel energy tariff to £1,455 per year.
Craig Lowrey, a senior consultant at the energy advisory Cornwall Insight, suggested a hike of that magnitude is nearly inevitable. “We would need to see a material and sustained reduction in the wholesale market to avoid the kind of cap levels we are predicting for that period [1 April-30 September 2022],” he said.
Consultants BFY have taken an even grimmer view of the energy market. In their forecasts, Ofgem may add a staggering £294 to the price cap when it is next adjusted in the spring. That could take energy bills for the 11 million households protected by the price cap to a typical £1,571 per year.
In either scenario, the price cap will be far above the average dual-fuel energy bill over the last decade, which has ranged from a low of £1,117 per year in 2017 and a high of £1,286 in 2013.
But price hikes are seen as inescapable, given the unprecedented surge in wholesale energy prices on the back of natural gas shortages, the pandemic recovery, nuclear and interconnector outages and low wind levels.
Although the price cap will rise by 12% from 1 October, it hasn’t kept pace with the rate wholesale prices have been increasing, leaving suppliers protesting that they’re being asked to sell energy for less than it takes to supply it. The government has insisted that the price cap will stay in place to protect consumers, even if it means dozens of incompletely hedged energy suppliers won't survive the winter.
But business and energy secretary Kwasi Kwarteng has admitted it “could be a very difficult winter” for households.
The burden will be increased for the millions of families that will see their income fall as the £20 per week uplift to Universal Credit ends on 6 October. Many of those households are already facing higher than average energy bills and price hikes. Households on Universal Credit are four times more likely than non-UC households to have prepayment meters, think tank the Resolution Foundation says. The cap on prepayment tariffs will rise by 13% to £1,309 per year from October.
Ofgem is also warning that the failure of energy suppliers will have an impact on household bills. Collapsed suppliers often leave debts to government schemes like the Renewables Obligation (RO) fund, which are then mutualised across the market and passed onto households by suppliers.
Additionally, consumers whose energy supplier fails may receive a more expensive deal from the supplier they’re transferred to through the Supplier of Last Resort (SoLR) process. This is particularly true among the households who took advantage of bargain-basement energy tariffs. Their suppliers are among the most likely to fold.
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