Energy bills could rise to nearly £3,000 over the upcoming winter period, according to Cornwall Insight’s latest prediction.
Its forecasts suggest that the Default Tariff Cap for Q1 2023 could hit £3,000, while the last quarter of 2022 Q4 is predicted to be £2,980.
This is largely being driven by the rise in gas prices, which climbed in response to the latest wholesale market uncertainty driven by flows to Continental Europe markets from Russia. There have been reductions in gas deliveries to Germany, Italy and Austria, among others.
“With the geopolitical events in Russia causing significant barriers to energy flows and the situation showing no sign of abating, we are unfortunately predicting average consumers will be facing a bill over 50% more than the existing cap - itself an unprecedented rise,” said Dr Craig Lowrey, principal consultant at Cornwall Insight.
“While the UK gets very little energy from Russia, ultimately the countries that do are seeking alternative sources of gas. This will impact the energy flows to the UK from Continental Europe and cause further volatility in the market, adding fresh upward pressure to prices.”
We have forecast that the Price Cap in Q1 2023 (Jan-Mar) will rise to £3,003 per year for a typical user, with the last quarter of 2022 Q4 (Oct-Dec) predicted to be £2,980.— Cornwall Insight (@CornwallInsight) June 21, 2022
This means a 50% rise on the existing cap – itself an unprecedented rise.
There is still expected to be a drop in the cap come summer 2023, but predictions have risen in absolute terms over the past few weeks across all periods.
It follows the price cap jumping by 54% at the beginning of April, to £1,971, following gas prices surging over the end of 2021 and into 2022. The significant increase in energy bills already threatens to push 6.3 million households into fuel stress.
In response to this the government has launched a number of support measures, including a one-off repayable £200 loan, a £150 council tax rebate and a discretionary fund announced in February.
The loan has subsequently been doubled and the requirement to pay it back scrapped, as it will now be funded by a windfall tax on oil and gas majors, announced by Chancellor Rishi Sunak in May. Cornwall Insight’s predictions do not include the impact of the Energy Bills Support Scheme.
“While the government has offered families some respite through their Energy Bills Support Scheme, this is not an enduring solution,” continued Dr Lowrey.
“Our predictions say high bills are to last for at least the coming 12 to 18 months - what will happen in January or April 2023 when the extra funding is not available? Longer-term solutions, including increasing energy security through investments in renewables, will lead to the UK becoming less reliant on energy imports - subsequently meaning the volatile wholesale market will have a lower impact on UK bills. Of course, this is of little comfort to those struggling right now.”
He added that in the shorter term there needs to be a review of funding support for those in fuel poverty and help targeted to those who most need it. This could be through a social tariff, support for those on pre-pay meters or other direct policies.
Additionally, cuts to demand could help lower bills, with funding for home insulation and smart meters popular. Figures from the Office for National Statistic’s Opinions and Lifestyle Survey suggested that four in ten adults who pay energy bills in Great Britain are finding it very or somewhat difficult to afford their energy bills, whilst interest in energy efficiency has grown with a quarter of adults considering making changes in their home.