Ofgem cut the price cap but bills forecast to rise this winter

The predictions for the Default Tariff Cap in this piece are out of date please click HERE to find our most up to date forecasts.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 July Default Tariff Cap (price cap) at £1,568 a year for a typical dual fuel consumer1. This is a 7% decrease from April’s cap set at an annual rate of £1,690. While wholesale prices have rebounded in recent weeks from their 30-month lows in February, the effects of lower gas and electricity prices earlier in the year is now being seen in the cap figures.

When the cap takes effect in July, it will mark the second consecutive quarter of falling energy bills, in addition to a sharp year-on-year drop from the Q3 2023 figures. This decline has played a significant role in reducing the UK’s annual inflation rate (Consumer Price Index) to a near three-year low of 2.3%, as announced earlier this week.

Our forecasts however show the fall may be temporary, with energy bills expected to rise once more in the lead up to winter. Due to an uptick in the wholesale market, we predict a typical consumer bill will increase to £1,761 from October and remain around this level from January 2025.

With energy bills unlikely to return to pre-crisis levels soon, there has been much speculation on the potential reforms that the government or the regulator could bring in the reduce bills for all or some consumers. The declaration of a general election may put such developments on the backburner for now, but likewise parties may choose their manifestos to reveal how they could look to address the challenge of energy bills which still remain historically high.

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

QUARTERLY  Q424 Forecast 
Electricity (2,700 kWh)£919.10
Gas (11,500 kWh) £842.51
TOTAL £1,761.61
Source: Cornwall Insight

Figure 2: Default Tariff Cap forecasts, Per Unit Costs and Standing Charge (dual fuel, direct debit customer) 

Electricity  Q424 Forecast 
Standing Charge (£/day) 0.61
Per Unit Costs (p/kWh) 25.77
Gas  Q424 Forecast
Standing Charge (£/day) 0.33
Per Unit Costs (p/kWh) 6.29
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.

Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:

“This further reduction in the price cap is a welcome relief for consumers after a challenging period of high energy costs. However, the anticipated rise in bills as we move into the winter months, emphasises the continued volatility of the market and the importance of providing protection for vulnerable households.

“It is clear the cap in its current form is not going to bring down bills to pre-crisis levels. However, while the general election is likely to put a halt to any immediate reforms to household energy bills, parties may use this opportunity to highlight how they intend to approach this challenge in the future. Whatever the outcome of the election, we hope the government will work with Ofgem to review the current cap and implement changes that not only lower bills but also support struggling customers.

“Beyond bill reform, we must address the underlying transformations needed in the energy market. Short-term fixes to bills, even significant ones, have limitations, and long-term stability will require a commitment to the net zero energy transition. Only through removing our reliance on volatile imports, can we truly get a grip on bills and deliver a sustainable, secure, and stable energy future for all.”

Reference:

  1. Ofgem’s Typical Domestic Consumption Values (TDCVs) are now set at 2,700 kWh per annum for electricity, and 11,500 kWh per annum for gas.

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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.