Cornwall Insight responds to the announcement of the January Price Cap

Craig Lowrey, Principal Consultant at Cornwall Insight said:

“The Energy Price Guarantee (EPG) will shield consumers from the January price cap of £4,279 announced by Ofgem today, however the rise will be concerning to the government, who will be shouldering the billions of pounds needed to compensate suppliers the difference.

“While the January price cap was locked in last week, the rise in wholesale market prices has led to an increase in our price cap predictions from April 2023 onwards. With these increases passed on to the government through payments associated with the EPG, in just one week our estimate of the full cost of 18 months of the EPG has jumped from approximately £38bn to £42bn. This is even allowing for the increase in the EPG from £2,500/year equivalent to £3,000/year equivalent.

“This highlights the nature of the wholesale market risk that the government is taking on by deciding to extend the EPG for longer than the March 2023 date announced by the Chancellor in October, with the consequence that the full costs may be potentially higher than currently budgeted for. Extending the EPG, even at an elevated level, has resulted in the government being exposed to variables and factors over which they crucially have no control. The risk is reduced by changing the level of support but remains acute.

“With so many households struggling to pay their bills, it is essential that support is made available, however it is clear that the EPG is not a desirable long-term solution. The review into domestic energy prices which has been signalled by the government will hopefully be the catalyst for a strategy to implement a long-term support solution. With Cornwall Insight predicting energy prices will remain above historic levels for many years to come, one thing is clear, more targeted support for the most vulnerable is likely to be needed on an enduring basis if the government wants to protect consumers while also stabilising its finances. The earlier this work begins the more easily some of the complexities in designing a more focussed scheme can begin to be addressed. One thing is clear, I think everyone accepts that it is not tenable to go on dealing with this situation in six month blocks of emergency measures.”

Our latest Price Cap predictions for 2023:

Figure 1: Cornwall Insight’s Default tariff cap forecasts

QUARTERLYQ2 2023 (Apr-Jun) 
CI Forecast
Q3 2023 (Jul-Sept)  
CI Forecast
Q4 2023 (Oct-Dec)
CI Forecast
Electricity£1,912.40£1,507.45£1,553.54
Gas£2,008.64£1,850.78£1,817.36
TOTAL£3,921.04£3,358.23£3,370.90

Source: Cornwall Insight analysis

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

ElectricityQ2 2023 (Apr- Jun) ForecastQ3 2023 (Jul-Sept) ForecastQ4 2023 (Oct-Dec) Forecast
Standing Charge (£/day)0.370.370.37
Per Unit Costs (p/kWh)61.3147.3548.94
GasQ2 2023 (Apr- Jun) ForecastQ3 2023 (Jul-Sept) ForecastQ4 2023 (Oct-Dec) Forecast
Standing Charge (£/day)0.310.310.30
Per Unit Costs (p/kWh)15.8114.4914.22

–Ends

Notes to Editors

For more information, please contact: Verity Sinclair at v.sinclair@cornwall-insight.com

To link to our website, please use: https://www.cornwall-insight.com/

About the Cornwall Insight Group

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.