Price Cap predictions soar as EU sanctions on Russia cause volatility in the wholesale market

Cornwall Insight’s forecast for the October (Q4 2022) Default Tariff Cap has increased to £2,879 for an average consumer, as Russian oil sanctions cause renewed uncertainty across the energy market. The predictions for the January (Q1 2023) Cap are even costlier rising to over £2,900 for the first time.

While the sanctions being imposed on Russian oil by the EU will have minimal impact on the supply and demand of energy in the UK, the sanctions have created fresh uncertainty in the European market with concerns that future embargos may be widened to include gas – as has news that Russia has cut supplies to more EU nations that refuse demands to pay for the fuel in roubles. This has led to a further upward pressure in gas wholesale prices.

Looking further ahead, we continue to forecast a decline of around 10% for the Q2 and Q3 periods in 2023. However, market volatility means predictions are likely to shift over the coming weeks and months.

These figures do not include any of the support measures announced by the government.

Figure 1: Cornwall Insight’s default tariff cap forecasts, Q4 2022 and Q1 2023

Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:

“Once again, volatility in the energy market has seen Default Tariff Cap predictions rise to unprecedented levels, as players in the energy industry react to instability and fears of widening sanctions.

“While Russia provides only a very small percentage of UK gas supplies, the impact on the Cap reflects the UK’s wider import reliance on EU and Norwegian gas flows. If sanctions were to be applied by the EU to Russian gas supplies, any Russian shortfall would potentially imply that these nations may be able to export less gas to the UK than would otherwise be the case, which would in turn be reflected in both gas and electricity prices – the latter given the volume of gas-fired generation capacity on the system. 

“The continued influence of geopolitical and economic changes on UK energy prices further strengthens the need for the UK to stabilise its energy supply. Reducing the UK’s reliance on foreign energy, through investment in green technologies and homegrown renewables would help secure energy supply, which should be reflected in UK energy bills.

“It is important to keep in mind that these forecasts are calculated using the information currently available, and a close eye will need to be kept on the consultation by Ofgem concerning the move to quarterly price cap reviews, due to close this month.”


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.