Lifeline for millions of Brits as new energy price cap forecast sees £600 drop to bills

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Cornwall Insight, an independent energy research and analysis firm has announced their predictions for a new price cap on household energy bills next April. Their latest forecast for the Default Tariff Cap (price cap) for April – June 2023 have dropped by over £600 since their previous estimates. This prediction provides a lifeline to millions of Britons, who feared that their energy bills would rise to around £4,300 in April, after the Government Energy Price Guarantee scheme ends. While Cornwall Insight initially predicted the bills to reach £4,347.69 in April the recent falls in wholesale gas prices has led the analysts to update their predictions.  

Now, once the Government’s Energy Price Guarantee scheme- which froze household bills at £2,500 since October- ends in April, the average consumer will be predicted to pay £3,702 a year.

They also found that for the rest of the months following April, the energy price cap will continue to fall, as the drops in the wholesale energy market filter through to consumer bills.

While this comes as a relief to millions to families who have been suffering from ever increasing energy bills over the past year, wholesale gas prices continue to remain well above historic levels.

Even in their predictions for the last quarter of the year, from October 2023 households would be expected to pay £3,182.13, which is still significantly higher than the current £2,500 price cap set by the Government. 

Fortunately, the Government’s current price will protect households from Cornwall Insight’s predictions for this January, which continue to be at an astronomical level at £4,255.29.

In their report, the analysts wrote: “Although wholesale prices have fallen sharply in recent weeks – particularly those for immediate term delivery – the nature of energy supplier hedging under the cap will mean that they have been largely unable to take advantage of this drop in the wholesale market.”

While the Government’s bill freeze protects households from the energy price increases, the rise in costs will mean that the Government makes up the difference with suppliers.

Cornwall wrote: “Our forecast per unit rate for Q123 for electricity, for example, is 66.76 p/kWh which compares with 34.00 p/kWh under the EPG, while the figures for gas are 17.05 p/kWh and 10.30 p/kWh respectively.”

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Dr Craig Lowrey, Principal Consultant at Cornwall Insight said: “Many will question why, when there have been significant declines in the wholesale market since record highs were reached in late August, these are not reflected in the January – March 2023 levels.

“However, 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 Q123.

“Our forecasts for Q223 onwards however do illustrate the fall in the wholesale market, with these having dropped by around a quarter since the highs seen in August 2022.

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“Despite these losses, the cap forecasts remain well above the annual sum of £2,500 per household under the EPG. 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.”



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