Energy Price Cap Predicted to Fall, but Return to Pre-Crisis Levels Unlikely Until End of Decade

…By Alan Peterson for TDPel Media. Energy market analysts at Cornwall Insight have released their final forecast for the upcoming quarter’s price cap, which is scheduled to be announced by regulator Ofgem on May 25.

The prediction suggests that the cap for the July to September period will be set at £2,053 for a typical household.

However, this figure represents an average and does not indicate that households will pay no more than that amount per year, as the cap is based on the unit of energy used.

Significant Decrease, but Still Higher than Pre-Pandemic Levels

If the forecast proves accurate, it will mark a considerable decrease from the current cap of £3,280 for April to June.

Nevertheless, it is worth noting that the government’s Energy Price Guarantee (EPG) already capped average bills at £2,500.

The predicted fall to £2,053 from July would bring the cap below the EPG threshold.

Long-Term Impact of the Crisis

Despite the expected reduction, the new figure would still exceed pre-pandemic levels by over £1,000 per year.

It remains significantly higher than the pre-crisis cap of £1,277 observed in October 2021.

Energy market analysts at Cornwall Insight do not anticipate bills returning to pre-2020 levels until the end of the decade at the earliest.

Challenges and Future Scenarios

The spokesperson from Cornwall Insight mentioned the possibility of the reappearance of more competitive fixed-rate energy tariffs as prices stabilize, providing consumers with additional options to manage their energy costs.

However, the energy prices remain susceptible to market volatility, and reliance on energy imports means that geopolitical incidents could have a significant impact.

Potential Changes and Review of the Cap

Several industry consultations and calls for evidence on different aspects of price cap modeling could influence the cap’s level and structure.

While these uncertainties are not expected to substantially impact the July cap, they could affect the cap level from October onwards, leading to possible changes in forecasts later in the year.

Concerns and Calls for Alternatives

Dr. Craig Lowrey, principal consultant at Cornwall Insight, noted that while the predicted decrease in bills is encouraging, the cap is still projected to remain high compared to historical norms.

He emphasized the need for a comprehensive review of the cap and exploration of alternative mechanisms, such as social tariffs, to protect the most vulnerable consumers from enduring severe financial hardship.

Sustainable solutions addressing the affordability challenges faced by energy consumers should be prioritized.

The forecasts indicate that although bills may be decreasing, they will likely remain unaffordable for many consumers, highlighting the need for long-term solutions to address energy affordability.

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