Ofgem energy price cap predicted to fall to £1,823 a year
The typical gas and electricity bill will fall to an average of £1,823 a year from October after the regulator, Ofgem, announces its energy price cap next week, a leading forecaster has predicted.
According to Cornwall Insight, the cap will drop from the current July to September level – equivalent to £2,074 a year – but consumer groups have warned that prices remain “dangerously high”.
Bills are likely to rise again from January to an average of £1,979 a year as a consequence of the recent surge in global gas market prices ignited by a string of planned strikes at major gas projects in Australia, the analysts said.
Craig Lowrey, a principal consultant at Cornwall Insight, said that despite the small decrease in bills from October, the energy price was forecast to remain far above pre-crisis levels, underscoring “the limitations of the price cap as a tool for supporting households with their energy bills”.
The energy price cap was introduced in January 2019, and before Russia’s invasion of Ukraine triggered a global energy crisis it had always sat at below £1,300 a year. Its rapid rise ever since, which prompted the government to supersede it with its own energy price guarantee, has reignited concerns that bills are unaffordable for millions of household living in fuel poverty, and sparked fresh calls for a cheaper “social tariff” for the most vulnerable.
“As many, including energy regulator Ofgem, have acknowledged, it is essential that the government explore alternative solutions, such as social tariffs, to ensure stability and affordability for consumers,” Lowrey said.
Ofgem’s chief executive, Jonathan Brearley, told the Guardian earlier this week that ministers should rethink whether the “very broad and crude” price control was still fit for purpose during the energy crisis.
The price cap was designed to ensure energy bills are fair by calculating what it costs for suppliers to provide gas and electricity to their customers. But millions have been pushed into fuel poverty by the record energy price rates.
“I think we are clear that a more rigorous framework of providing support for customers is needed,” Brearley said.
Ofgem the energy regulator for Great Britain, is expected to announce the modest drop in the unit price for gas and electricity next Friday because prices on the global gas markets have fallen from record highs last year.
But the cap will also appear lower because the regulator has changed how it calculates the average energy bill by assuming that households will use 7% less electricity and 4% less gas. Without this change, the October price cap would be almost £100 a year higher at £1,925, according to Cornwall Insight.
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“This coming winter will not feel any better than last, as energy bills remain at dangerously high levels,” Simon Francis, a campaigner at the End Fuel Poverty Coalition, said.
The price cap only dictates the maximum a supplier can charge per unit of energy, based on the annual consumption of a typical home. A household’s actual dual-fuel bill will depend on how much gas and electricity they use.
Cornwall predicts that under the new price cap the unit price for electricity will fall from 30p per kilowatt hour to 26.96p/kWh, while the unit price for gas will drop from 8p/kWh to 6.93p/KWh.