Response to the domestic Energy Price Guarantee announcement

Following the announcement that the domestic Energy Price Guarantee (EPG) will come to an end in April 2023, Cornwall Insight has released approximate Price Cap forecasts for an average consumer for the period from April 2023 – December 2023.

QUARTERLYQ2 2023
(Apr – Jun)
CI Forecast
Q3 2023
(Jul – Sept)
CI Forecast
Q4 2023
(Oct-Dec)
CI Forecast
Electricity£2,060.99£1,591.36£1,636.33
Gas£2,286.70£2,105.74£2,085.78
TOTAL£4,347.69£3,697.10£3,722.11

Source: Cornwall Insight

Gareth Miller, CEO at Cornwall Insight said:

“The Chancellor’s statement that he will be maintaining the EPG until April next year, with the government looking at more targeted measures thereafter, resonates with the views of Cornwall Insight. In very challenging political, market and economic circumstances, it is good to see the government recognise the volatility in prices the fiscal position may otherwise be exposed to if it did not take this course of action.

“As Cornwall Insight have previously recommended, it was always important that the government use the cover of their bold intervention to review the universal nature of the domestic EPG and develop options for targeted schemes which mitigate the gamble being taken on gas prices, whilst critically still protecting those who need support, alongside increasing the focus on energy efficiency. We are glad that the government are now taking these actions.

“Of course, if gas and power prices fall, it could be argued that keeping the EPG as it is currently would contain few risks. However, on the logical assumption that suppliers bought ahead for this winter there are likely to be c£30bn of costs already locked in. Our latest forecasts for the Ofgem domestic default tariff suggest there would still be costs to the EPG scheme for 2023 even when we have seen some easing in the forward curve from market peaks in recent weeks. And should gas and power prices rise further into winter 23-24, without any change to approach, there would be exposure to heightened cost risks over which no UK Minister has real control. We can hope that they won’t, but in a febrile economic and market environment, hope is not a strategy and leaving uncovered downside risk would be very challenging indeed.

“As the chancellor stated, “governments cannot eliminate volatility in markets”, and because of that simple fact, this move towards something more elastic, review-based and guarded was inevitable. Now constructive attention needs to turn to what a replacement scheme looks like from April to ensure that those who need support receive it, and that whatever options are taken forward can form the foundation stones of an enduring, fair and sustainable market after the current crisis subsides.

“A world in which we move back to the default tariff cap cannot credibly be one that is amongst those options, given the heightened cost environment likely to prevail in the medium term and the situation that arose before the EPG was implemented.

“Work on refined domestic support, alongside developing a prospectus for what replaces the Energy Bill Relief Scheme for business, will now need to begin and begin rapidly. There are many ideas in circulation from the summer which I expect Cornwall Insight will be consolidating and evaluating in the coming weeks. It will be vital that a Treasury-led review avoids falling into a public finance-led approach that is too far removed from social and economic realities for households. Hearts as well heads will need to be engaged.”


–Ends

Notes to Editors

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

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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.