Cornwall Insight responds to the announcement of the January price cap

The predictions for the Default Tariff Cap in this piece are out of date please click HERE to find our most up to date forecasts.

Ofgem has today announced the January Default Tariff Cap (price cap) at £1,928 a year for a typical dual fuel consumer1. This is a 5% increase from October’s cap set at £1,834 a year.

Escalating wholesale market volatility, triggered by geopolitical factors such as disruptions to the Finnish Balticconnector, the Israel-Hamas conflict, and industrial action at gas production facilities in Australia, has collectively driven up energy unit prices.

Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:

“Amid the cost-of-living crisis, the last thing households need is a rise in energy bills – especially going into the winter months. Earlier this year, it seemed like the outlook for consumer bills was improving, with bills gradually falling after the dramatic rises post Russia’s invasion of Ukraine. However, as is often the case in the energy market, new challenges have arisen, and our reliance on foreign energy has once again left the UK vulnerable to price increases caused by events around the globe.

“With little in the way of direct energy bill support coming out of the Autumn Statement, consumers are likely to look at lowering energy usage to counteract high bills – particularly given that bills remain well above their historic averages. However, as we move through 2024, it’s not just the persistently high unit costs that will be a worry; the looming rise in electricity standing charges from April adds another layer to the equation.

“Given that standing charges for gas and electricity make up about 16% of overall household bills, even those who use less energy might find themselves grappling with escalating costs. Ofgem’s recently announced review acknowledges this imbalance, but it’s a complex issue. Redistributing these charges might assist some but could harm vulnerable individuals in less energy-efficient homes or those with higher energy needs.

“Fundamentally, the solution extends beyond tweaking energy bills, given the underlying cause of rising energy bills over the last 24 months. We need a long-term strategy that reduces our dependence on imports of energy – particularly gas. By investing in domestic renewable energy sources, we can start to break free from the international market fluctuations and stabilise our energy prices for homes and businesses alike.”

Figure 1: Cornwall Insight’s Default Tariff Cap forecasts using new Typical Domestic Consumption Values (dual fuel, direct debit customer)

QUARTERLYNew TDCV Q2 2024 CI ForecastQ3 2024 CI ForecastQ4 2024 CI Forecast
Electricity2,700 kWh £926.78£900.05£930.99
Gas11,500 kWh £889.68£892.97£902.54
TOTAL  £1,816.46£1,793.02£1,833.53
Source: Cornwall Insight

Figure 2: Default Tariff Cap forecasts, Per Unit Costs and Standing Charge (dual fuel, direct debit customer)
ElectricityQ2 2024 ForecastQ3 2024 ForecastQ4 2024 Forecast
Standing Charge (£/day)0.610.600.61
Per Unit Costs (p/kWh)26.1325.2026.28
GasQ2 2024 ForecastQ3 2024 ForecastQ4 2024 Forecast
Standing Charge (£/day)0.300.300.30
Per Unit Costs (p/kWh)6.786.826.90
Source: Cornwall Insight

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.
1.     As of October 2023, Ofgem’s Typical Domestic Consumption Values (TDCVs), are set at 2,700 kWh per annum for electricity, and 11,500 kWh per annum for gas.
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Cornwall Insight is the pre-eminent provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British, and Irish energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes and policy frameworks, and a practical understanding of how markets function.