Our final forecast for the April price cap

The predictions for the Default Tariff Cap in this piece are out of date, please click here to find our latest forecasts and commentary on the cap.

We have released the final prediction for the April Default Tariff Cap (price cap) following the closure of the observation window1, on 17 February. We are predicting the cap for a typical household2 to be £3,294 equivalent per year. Ofgem will announce the cap on 27 February.

Consumers will not be directly impacted by the price cap due to the Energy Price Guarantee (EPG), which will limit a typical household’s energy bill to £3,000 equivalent per year, a rise from the current rate of £2,500. We have also released our predictions for the per unit and standing charge.

If, as forecast, the level of the EPG is lower than the April price cap, the government will pay suppliers the difference. The greater the disparity between the cost of the two schemes the higher the governmental expense. Our forecasts show that raising the EPG from £2,500 to £3,000 in April will save the government £2.6bn across the entire scheme. Based on projected costs, if the EPG were to increase to £3,000 as planned, the estimated cost would be £26.8bn while if it were to remain at £2,500, the estimated cost would be £29.4bn.

We are additionally sharing our predictions for the July and October price caps. Our forecasts for the two caps are lower than the EPG, which will mean – should these forecasts be achieved – the government will effectively incur no cost for the EPG scheme during this period.

We also note that there are ongoing industry consultations which will impact our forecasts for the remaining 2023 periods, and which we have not included given the uncertainty regarding their outcome – although these are not expected to be material.  

Figure 1: Cornwall Insight’s Default tariff cap forecasts

QUARTERLYQ2 2023  (Apr-Jun) CI ForecastQ3 2023 (Jul – Sept) CI ForecastQ4 2023 (Oct-Dec) CI Forecast
Electricity£1,708.44£1,088.81£1,096.68
Gas£1,586.48£1,064.53£1,064.37
TOTAL£3,294.92£2,153.34£2,161.05

Figure 2: Default Tariff Price cap forecasts, Per Unit Cost and Standing Charge including VAT (dual fuel, direct debit customer, national average figures)

ElectricityQ223 ForecastQ323 ForecastQ423 Forecast
Standing Charge (£/day)0.380.380.38
Per Unit Costs (p/kWh)54.1932.8233.02
GasQ223 ForecastQ323 ForecastQ423 Forecast
Standing Charge (£/day)0.290.290.30
Per Unit Costs (p/kWh)12.337.987.95

Regrettably the forecast for April looks set to leave the price cap above the increased Energy Price Guarantee level, meaning average annual consumer bills will effectively jump by 20% (£500). However, this is before we take into account the end of the £400 energy rebate scheme in March, meaning that the cost of energy for households will increase by even more. While tumbling cap projections are a positive, unfortunately, already stretched households will be seeing little benefit before July.

In the latter half of the year, we see a notable shift in our predictions, as the cap falls below the government support price for the first time since the introduction of the EPG in October. This gives us optimism as far as the wider energy debate is concerned. While prices under the cap remain considerably higher than historic norms, the combination of falling wholesale prices and an increase in the EPG could see the return of competitive tariffs, and with it the chance for consumers to take back some control over their energy bills.

Of course, all of these outcomes remain subject to wholesale energy market volatility – the potential for which cannot be discounted while the current energy crisis is still ongoing. As demonstrated by events over the past year, international incidents can significantly impact energy prices, and our dependence on foreign energy imports leaves us more susceptible to global changes. What we can say is current indications show the outlook for energy bills improving, which in itself is a positive sign.

Reference:

  1. The period of time Ofgem use to monitor the market and calculate their cap.
  2. Cornwall Insight use the Ofgem central case Typical Domestic Consumption Value (TDCV) figures in its default tariff cap calculations. These are 2,900kWh per annum for electricity and 12,000kWh per annum for gas.

Related thinking

Home supply and services

Generation guaranteed: suppliers increase Smart Export Guarantee rates  

The Smart Export Guarantee (SEG), as the successor to the Feed-in Tariff (FiT) scheme, offers payments to small-scale low-carbon generators for the electricity they export, with export rates and tariffs being set by SEG licensees. Since the new year we have seen notable increases and changes in the export rates...

E-mobility and low carbon

Ending the ICE age: EV Country Attractiveness Index Findings

Over the past decade, electric vehicles (EVs) have become increasingly popular across many of the world’s major economies, with both the eco-conscious and average consumer adding to the rise in sales. This phenomenon has not just appeared from thin air, however, as international climate agreements, national net zero plans, EV...

Regulation and policy

Our response to the Spring Budget

Once again, a UK budget has seen some significant energy policy announcements that will stir up conversation and opinion across the country. It also shows how reining in energy prices is seen as key to restraining inflation. The pre-budget announcement to maintain the Energy Price Guarantee (EPG) at £2,500 had...

Low carbon generation

Understanding the evolution of the Irish electricity markets

The Irish electricity sector has undergone significant change in recent years. The Integrated Single Electricity Market (I-SEM) arrangements introduced in 2018 fundamentally transformed the market framework to maximise competition, facilitate electricity wholesale trading, and incentivise the development of low-carbon generation sources. In parallel the physical system continues to evolve rapidly....

Home supply and services

Our response to the publication of the REMA consultation summary

On 7th March the government published the summary of responses received from its Review of Electricity Market Arrangements (REMA) consultation. The responses received showed the industry has expressed strong support (92% agreement) for energy market reform that prioritises decarbonisation, security of supply, and cost-effectiveness. Respondents also agreed that the current...

Energy storage and flexibility

Waiting to connect: the problems and solutions for network connection queues (Part 2)

Network connection queues continue to be a notable topic of interest as many generators face significant delays to project development – an issue that is directly conflicting with net zero ambitions and recent focuses on strengthening domestic energy supplies. In Part 1 of our two-part series on connection queues we...

Home supply and services

Our response to the announcement of the April price cap

The predictions for the Default Tariff Cap in this piece are out of date, please click here to find our latest forecasts and commentary on the cap. Following the announcement by Ofgem that April’s Default Tariff Cap (price cap) will fall to an average £3,280 per year, nearly a £1,000 drop for...

Net zero corporates and ESG

Energy Net Zero: Giving you more of ‘Watt’ you need

It is no surprise that economic conditions in the UK complicate the ambitions of businesses when it comes to achieving their decarbonisation goals. But in a paper our research team released earlier this year, we found that despite increasing financial demands, net-zero targets remain a priority for many businesses. That...