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Cornwall Insight warns energy supply market 'on edge' for further consolidation, predicts £1,660 price cap

A Summer 2022 price cap of £1,660 would be a 30% increase on the cap for Winter 2021-22​. Image: Getty

A Summer 2022 price cap of £1,660 would be a 30% increase on the cap for Winter 2021-22​. Image: Getty

New modelling from Cornwall Insight has forecast that the Summer 2022 default tariff price cap could now reach around £1,660.

This would be around a 30% increase on the record level seen for Winter 2021-22, and would be a result of wholesale gas and electricity prices continuing to also reach new records.

Indeed, this increase for Winter 2021-22 along with the high power prices and the successive supplier exits last month means the GB energy market remains “on edge for fresh volatility and further consolidation”, Cornwall Insight said.

Further costs are likely to arise due to the Supplier of Last Resort (SOLR) scheme, with suppliers taking on customers of exited companies able to make a claim to Ofgem for any additional costs above those they expect to recover from the transferred customers, including any outstanding credit balances.

The costs of this are met by electricity and gas distribution network companies, which recover them through their industry charges on consumers, meaning supplier exits via SOLR can lead to higher costs for all consumers, Cornwall Insight said.

With the level of supplier exits recently - with Avro Energy, Green Supplier, People’s Energy, Utility Point, PfP Energy and MoneyPlus Energy all shuttering in the last month - the prospect of further claims is apparent, although when these costs will reach bills is still unclear.

Additional costs from failed suppliers not paying charges from schemes such as the Renewables Obligation and feed-in tariff will also need to be met.

While these costs were not factored into Cornwall Insight's estimates of the price cap for Summer 2022 due to the uncertainty surrounding them, it said they will ultimately be borne by the industry as a whole and by customers in particular.

"The explosion of choice and innovation seen in the sector in the last decade by challenger suppliers has been fundamentally altered in a matter of months, and while all eyes will inevitably be on this winter, the need for an enduring solution to ensure that the gains experienced by almost three decades of competition are not lost," Dr. Craig Lowrey, senior consultant at Cornwall Insight, said.

Earlier today (7 October), National Grid ESO released its Winter Outlook for 2021, forecasting continued tight margins, with the possibility of price spikes in the Balancing Mechanism and high forward prices due to external pressures such as the high gas prices.

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