Energy Bill Form

October 3, 2023

Energy Price Forecast Predicts Price Cap Increase In Early 2024

In a climate of uncertainty, one thing is clear: the energy industry is at a crossroads, and the decisions made now will have long-lasting implications for households across the UK.

A recent energy price cap forecast by Cornwall Insight predicts the average annual bill will increase to £1,996 in January 2024, an increase of £73. The energy price forecast gives suppliers a limit to how much they can charge households for each unit of energy they use.

Why will energy bills increase?

The energy price increase is said to be due to a rise in wholesale energy prices, which have been reducing in price from around May 2023.

This pattern of reduction created hope for consumers to return to pre-pandemic levels once again, however, this is not the case, as energy costs continue to rise.

Although prices will have started to decrease due to the October 2023 price cap change, this trend is set to be phased out pretty quickly.

What is the new energy price cap?

From October this year, a typical household with dual-fuel will pay around £1,923 a year until December. This price is down from £2,074 which was the annual from July to September.

However, some Government assistance schemes which were in place last winter have now ended, and bills are still much higher than in 2021.

Is the rise in prices a surprise?

As Dr Lowrey mentions below, the energy price rise is not “wholly unexpected”, this rise is due to an increase in wholesale prices, which is a common occurrence in the upcoming winter months as demand increases and supply and storage are stretched.

Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:

“The energy price cap has steadily declined over the past year, and while it is disappointing to see this trend stall, given the movements in the wholesale market of late it is not wholly unexpected.
While the rise is small, it shows we cannot just assume prices will continue their fall and eventually reach pre-pandemic levels. Policies need to be put in place to deal with the possible situation that high energy prices have become the new normal.”

A graph showing the average energy price for a household from April 2020 to January 2024.
Energy Price for a typical household. Source - Ofgem/Cornwall Insight

Dr Lowrey went on to say…

“Dealing with persistently high prices in this new energy landscape will not be achieved by a one-size-fits-all solution. The government possesses a toolbox of short- and medium-term options, including targeted support such as social tariffs or investment in energy efficiency, which could ease the burden on vulnerable households.”

Will there be support from the government?

There is no set plan in place from the government on how they will help households and low-income households if prices continue to rise as of yet.

Vulnerable households are already struggling with the prices right now, so when prices rise again, this burden will become much greater.

With prices rising once again, there will be a need for support for many households, as there is no longer any support. However, the government has support schemes under review which can be launched as and when needed.

Will prices ever go back to pre-pandemic, or normal, prices?

As things stand, energy prices are not expected to go back to the way they were pre-pandemic. However, prices could fall, as they have done in recent months, but this does not mean we are in for a large drop in prices and a one-way ticket back to the glory days!

How can energy prices become lower and steady?

The volatility of the energy market shows us that without massive changes to the energy industry, we are never going to be safe from spikes.

The industry has to take steps away from fossil fuels and push renewable energy all over the UK, not only for domestic customers but for businesses as well.

More funding, technological advancements and extended support from the government are the keys to becoming a net-zero country. But even with all of this, it will take time and a long transition period until we reach our extravagant goals.

The recent forecast by Cornwall Insight paints a sobering picture of the UK's energy landscape. Despite a brief period of declining prices, households are bracing themselves for another energy price increase, with the average annual cost expected to rise to £1,996.

This increase is largely attributed to the surge in wholesale energy prices, especially as we approach the winter months when demand traditionally spikes.

While the government has some support schemes under review, there is no concrete plan to alleviate the financial strain on vulnerable households.

Dr Craig Lowrey's insights remind us that a one-size-fits-all solution is unlikely to be effective in this complex scenario. Targeted support and investment in energy efficiency measures could offer some relief, but these are not immediate solutions.

In a climate of uncertainty, one thing is clear: the energy industry is at a crossroads, and the decisions made now will have long-lasting implications for households across the UK.

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