The UK saw the largest rise in Ofgem’s Energy Price cap by far, when it was upped by almost £700 in April of 2022.
The price cap was introduced in January 2019 and is reviewed every 6 months. It’s set by the energy regulator Ofgem in order to limit the price a supplier may charge you per unit of electricity and gas. The energy cap only applies to consumers on a standard variable tariff, which is often a provider’s most costly plan.
Now of course it can be hard to predict what the energy market has in store, especially with other unprecedented things happening in the world like the conflict in Russia-Ukraine that can eventually have a knock on effect on the market. We’re going to be looking at a few recent study’s that may indicate what to expect in the coming years.
Starting with a report from Cornwall Insight, who provides energy market intelligence and analysis, they predicted that in the short term (over the next year) we will see another £600 increase in cap for Winter 2022, meaning that in the past year alone energy prices would’ve doubled, bringing the overall default tarrif price cap to over £2,500.
The company predicted the Summer 2022 price cap too within 3% when it was announced in February.
Explaining the volatility in the markets, Dr. Craig Lowrey, Principal Consultant at Cornwall Insight said:
“Originally brought in to shield consumers from significant bill rises, the limitations of the Default Tariff Cap are once again being demonstrated, with our predictions showing energy bills could be set to double in just one year. The energy market is a different place even from two months ago, let alone four years ago when the cap was introduced, with these latest figures further highlighting that the cap serves to defer wholesale price increases.”
On a slightly more positive note, the company has predicted for the price cap to fall slightly after Winter 2022 as we go into Summer 2023, however this slight fall would only bring us back to where we currently are, which is an annual default tariff price cap of £2,000.
Looking further into the future, Cornwall insights have predicted Energy prices to remain ‘significantly above average’ up to 2030 even, citing delays in new nuclear power and closures of existing plants.
Tom Edwards, Senior Modelling Consultant at Cornwall Insight, said:
“Looking ahead to the start of the 2030s, we can see that once the nuclear power stations start to retire in greater numbers and the coal fired power stations have closed for good, there is a new period of volatile pricing coming to the UK energy market.
“Increasing the UK’s longer-term energy storage facilities could go a long way to reducing seasonal variations, helping to harness the locally generated energy from high renewable output periods for use when it’s still, cold and dark.”
Other companies such as Centrica have also made similar predictions, with chief executive of UK utility Chris O’Shea telling BBC Radio 4, “There’s no reason to think energy prices will come down anytime soon.” ”The market suggests high gas prices will be here for the next 18 months to two years,” he said.
He then went on to say how Natural gas would play a key role in the transition away from coal, explaining: “”As you turn off coal-fired power stations in other countries, they develop more demand for gas — but there is not an abundance of gas you can just turn on,”.
Offering advice for the Government, O’Shea cited three things that could be done by the government to halve the impact on bills for everyone:
The first piece of advice was for the cost of moving consumers from insolvent suppliers to last-resort suppliers to be deferred which would save about £100.
The next piece of advice was for VAT on bills could be taken off “temporarily or permanently”, currently charged at 5% which would save another £100.
Lastly, he suggested green levies “of around £175” could be removed from energy bills and transferred to general taxation.
What are the Government currently doing to combat Bills?
On the Governments website they announced a package that would see domestic electricity customers in Great Britain receive a £200 reduction in their electricity costs from this October. All households with a domestic electricity connection will be automatically eligible for the reduction.
You can find out how to calculate your Bills here.