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The predictions for the Default Tariff Cap in this piece are out of date, please click here to find our latest forecasts and commentary on the cap.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

Commercial and market outlook

What to look out for in 2024

Cornwall Insight experts provide their predictions for the year ahead in this handy infographic. We have collated some predictions from across our knowledge base to provide a quick snapshot of what to look out for in the GB energy market in 2024. The key highlights include the global discussion on...

E-mobility and low carbon

Paving the way: EV Country Attractiveness Index findings

Following the previous iteration of the EVCA Index, published in September 2023, the EV market has continued to grow across Europe. From October 2022 to October 2023, the EU, Norway, and the UK have seen a combined 29% year-on-year increase in battery electric vehicle (BEV) sales. Cornwall Insight have partnered...

E-mobility and low carbon

Driving growth: EV Country Attractiveness Index findings

Since the previous iteration of the EVCA Index, published in June 2023, there have been some changes to the electric vehicle (EV) landscape. The EV market has continued to grow with battery electric vehicle (BEVs) sales increasing across Europe. Cornwall Insight have partnered with law firm Shoosmiths to create the...

Regulation and policy

What’s going on with REGOs?

Renewable Energy Guarantees of Origin, more commonly referred to as REGOs, are certificates issued to accredited renewable generators for every MWh of electricity they produce over a year period. The initial intentions of these certificates were to provide suppliers a means to prove the level of renewable generation they received...

Home supply and services

Fixed tariffs and collective switching return to the market

With the Default Tariff Cap falling by 17% compared to the Energy Price Guarantee (EPG) at the start of the month, there has been a great deal of attention around the possible return of fixed tariffs for domestic consumers. Several fixed tariffs were indeed launched in recent weeks, representing a...

E-mobility and low carbon

Charging forward: EV Country Attractiveness Index Findings

Since the previous iteration of the EVCA Index, published in March 2023, there have been some changes to the EV landscape. New countries have emerged as leaders in battery electric vehicle (BEV) growth while others have continued to develop their charging networks and maintain economic strength at a time when...

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...