Commenting on today’s Ofgem announcement that the default price cap would increase by £139 to £1,277 for the six months effective from 1 October 2021 for a typical domestic customer, Craig Lowrey, Senior Consultant at Cornwall Insight, said:
“Despite serving as a means by which to curtail cost increases, the price cap has seen a large rise today to reach a new high level since its introduction in 2019. The rise has predominately been caused by the sharp increase in wholesale gas and electricity markets.
“With expectations of an economic rebound in response to an easing of lockdown conditions, record highs in the EU carbon market, rallying demand for liquefied natural gas in the Asia-Pacific region and concerns over the supply-demand balance for gas and electricity for this coming winter, we have seen a material rebound in the gas and electricity markets from their 2020 COVID-induced slump.
“Indeed, looking at winter 2021-22 Baseload electricity as the front season, the levels seen in June 2021 represent the highest price for such a period since August 2008.
“If wholesale price levels remain elevated, early predictions from Cornwall Insight show the price cap is set to remain high with a potential further increase to approximately £1,300 per annum for the Summer 2022 price cap. However, the calculation period for the wholesale component has not started, so this remains in a state of flux.
“With such a substantial increase to the price cap, it is highly likely this will be passed through to new customers fairly quickly as suppliers look to defend their margins. As a result, it is likely the UK domestic market will see a resurgence in customer engagement as they look to switch to lower-cost alternatives.”
Notes to Editors
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