Cornwall Insight’s forecast for the October (Q4 2022) Default Tariff Cap have increased to £2,790 for an average consumer, with the January (Q1 2023) Cap now rising to over £2,800. This is following updated guidance from Ofgem on their proposed shift to quarterly calculations, as well as recent developments in the wholesale gas and electricity markets.
Under the proposals now out for consultation from the regulator, the Default Tariff Cap will now change four times a year rather than the current two for the summer and winter seasons. While the notice period will be shortened from its current approximate two months to 25 working days. In making the changes, Ofgem has indicated that the intention is to allow customers to experience any fall in the wholesale market faster than would otherwise have been the case, but noting that this means that increases will also feed through faster.
From a supplier perspective, the more frequent cap adjustment and shorter notice period are intended to help improve their financial resilience, which should in turn – in conjunction with other measures established to address suppliers’ financial health – intend to avoid a repeat of the mass exits seen since late Summer 2021.
Figure 1: Cornwall Insight’s Default Tariff Cap forecasts, Q4 2022 and Q1 2023, £ per year (direct debit dual fuel customer)
|Q4 2022 (Oct-Dec)||Q1 2023 (Jan-Mar)|
Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:
“As predicted, the devil was in the detail, and new information from Ofgem has sparked a significant increase in our Default Tariff Cap predictions. An average consumer is now forecast to see an increase of £800 per year in October, on top of the already unprecedented rises in April. While the switch to quarterly pricing has been designed so consumers can reap the rewards of lower energy prices at a much quicker rate, the other side of the coin is that any increases will show up quicker in consumer bills.
“The options for consumers are limited, and it has never been more important for the government to review its options surrounding support for consumer energy bills. In the short-term, this could mean a review of the Energy Bills Rebate and more targeted support for vulnerable consumers.
“In the meantime, it is important to keep in mind that the changes Ofgem are making to the system are by no means set in stone, and while the wholesale energy markets continue to display volatility and the cost-of-living crisis dominates the headlines, the prospect of further shifts cannot be discounted ahead of the consultations closing on 14 June 2022.”
Notes to Editors
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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.