UK energy consumers brace for surge despite falling gas prices

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Households face a sharp rise in their energy bills in April, predicts Cornwall Insight, after warning that the price cap will not fall below the reduced subsidy rate in time for Ofgem’s next update later.

Cornwall Insight expects the price cap to drop from its current all-time high of £4,279 per year to £3,294 for the three-month window.

That would be a steep drop from current levels, but would still be historically very high – with a price cap moving between £1,000 and £1,200 a year before the industry crisis which saw 30 suppliers collapse and Russia’s invasion of Ukraine. prices at record highs.

The energy specialist expects the price cap to drop sharply in the second half of the year, when lower gas prices will be reflected in seasonal contracts and hedging – that’s how suppliers generally purchase energy for customers.

However, this will not be felt in time for the second quarter update, which means that a difficult period awaits households this spring.

How Cornwall Insight’s forecast will affect gas prices, with pre-crisis energy bills still lagging (Source: Energy UK)

Ofgem is expected to announce the cap for the second quarter of the year on February 27, setting the maximum price for an average energy consumer on a standard variable tariff from April to June.

With the price cap set to remain above the £3,000 a year Energy Price Guarantee (EPG) subsidy rate – with Chancellor Jeremy Hunt increasing levels of protection for average bills by 2 £500 a year for the next 12 months – many customers will have no choice but to swallow the £500 hike.

Households are also set to lose the £400 in savings from the Energy Bill Support Scheme, meaning an average increase of £900 a year in energy bills is on the way.

Dr Craig Lowrey, Principal Consultant at Cornwall Insight, said: “Unfortunately the forecast for April is expected to leave the price cap above the increased energy price guarantee level, which means that average annual bills consumers will actually increase by 20%.

“However, that’s before we factor in the end of the £400 energy rebate scheme in March, which means the cost of energy for households will rise even further. Although the ceiling drop projections are positive, unfortunately already strained households will see little benefit before July.

Cornwall Insight calculates that the reduced EPG support will save the government £2.6billion across the whole scheme.

Based on projected gas prices, if the EPG were to increase to £3,000 per year as planned, the estimated package total would be £26.8 billion while if it were to remain at £2,500 per year , the projected cost of energy support policies would be £29.4 billion.

Indeed, when the EPG is lower than the ceiling price, the government must pay the difference to the suppliers.

It currently calculates that the price cap will fall to £2,362 in Q3 and remain below £2,389 per year in winter.

By sydney

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