Cornwall Insight comments on Ofgem’s price cap announcement

Commenting on Ofgem’s announcement of the default price cap falling by 7% to £1,042 per year for the six months effective from 1 October 2020, Robert Buckley, Head of Relationship Development at Cornwall Insight, said:

“This is a dramatic reduction and sees the price cap fall to its lowest level since its introduction. However, there is little surprise that we saw a drop in the price cap level today, due to the significant fall in wholesale prices. Even Ofgem’s change in its wholesale price methodology following a successful appeal from British Gas, and a change to smart metering costs, did little to offset the large decrease in wholesale energy prices.

“This drop in wholesale prices is a direct result of the COVID-19 lockdown. The market saw energy demand fall as businesses were ordered to close, and people were asked to stay at home, this, in turn, saw wholesale prices plummet. Day-ahead power had dropped from an average of £33.7/MWh on 22 March, the day before lockdown was announced, to an average of £10.9/MWh by 10 April. This dramatic fall has no doubt weighed heavily on the price cap calculations.

“The difference between the costliest deals (usually standard variable tariffs) and the cheapest stood at £562 on 25 July 2020. While today’s announcement of the default price cap falling will perhaps narrow this, a notable gap will remain. As a result, today’s announcement should be used as a catalyst for customers to check their tariff to see if they are on the best possible deal. This is especially important as next time the price cap is reset for April 2021, we could well see rises offsetting as much as half of the falls announced today.”