Bills to Climb in October, With Worse to Come in January

Ofgem has today announced a 4% rise in the Default Tariff Cap (price cap) from October, pushing household bills to their highest per unit level in three years, as the conflict in the Middle East continues to keep wholesale markets elevated.

Cornwall Insight’s new forecast shows no relief in sight for January, with bills currently forecast to rise a further 9% in the new year. This would put an average January bill up to £1,872 a year, £149 higher than the £1,723 October price cap announced today, under Ofgem’s revised definition of average consumption, which took effect in July¹. The January figure will not be confirmed until November, and there remains a lot of time for wholesale market conditions to shift.

Wholesale energy prices currently make up over 40% of the cap, and mixed signals over the next stages of the US-Iran conflict have seen gas prices spike over recent weeks. This combined with a summer heatwave across Europe, supply disruption in Norway and strong demand from Asia have led to low winter gas stock levels – particularly in Continental Europe. Even if the conflict were to end tomorrow, colder weather, displaced global supply and low stock means January’s prices are likely to stay higher for the short to medium-term’.

Rising bills in the first three months of winter, with forecasts of a further increase in January will put pressure on the government to lay out how it plans to support vulnerable households, both through this winter and further ahead. That could mean a one-off targeted payment, or something more permanent such as a social tariff, a social discount, or a form of national energy guarantee offering everyone a set amount of essential energy at a reduced rate. The Autumn Budget in November may be where some of these questions get answered.

Figure 1: Cornwall Insight’s Default Tariff Cap forecast (dual fuel, direct debit customer)

Source: Cornwall Insight’s Default Tariff Cap Forecast Service

Figure 2: Default Tariff Cap forecast, Per Unit Costs and Standing Charge (dual fuel, direct debit customer). These do not include the variances above.

Default Tariff Cap Forecast	Jan-March (Q127) Standing Charge	Jan-March (Q127) Per Unit
Electricity	0.55	28.33
Gas	0.31	8.94

Source: Cornwall Insight’s Default Tariff Cap Forecast Service

Note: All figures are national average unless otherwise stated. All intermediate and final calculations are rounded to two decimal places. Totals may not add due to rounding.

Dr Craig Lowrey, Principal Consultant at Cornwall Insight:

“Households will see rising energy bills going into winter, with the risk that unfortunately January will bring even more hardship. What is frustrating is these rises, as we have seen time and time again, have very little to do with what is happening in Britain. The market is reacting to events thousands of miles away, and low European gas stock levels that were already tight even before the heatwave. It certainly makes a case for reducing our reliance on the volatile gas markets.  

“Where January bills land will depend on whether the situation in the Middle East calms down in the next couple of months. However, even if we saw an end to the conflict, lower stocks going into winter as demand increases mean falling bills in January is unlikely. Households who will feel the bill rises most are those who can least afford it, and it is vital that any support reaches the most vulnerable first. That’s why the Budget in November matters so much. Households need to know what kind of support, if any, is coming, and when, so they can plan for the cold months ahead.”

Reference:

1. Ofgem’s central case Typical Domestic Consumption Values (TDCVs) are currently set at 2,500 kWh per annum for electricity and 9,500 kWh per annum for gas.
2. Ofgem’s previous Typical Domestic Consumption Values (TDCVs) were set at 2,700 kWh per annum for electricity and 11,500 kWh per annum for gas.