Analysts at respected consultants Cornwall Insight are forecasting the default price cap for home energy tariffs covering summer 2022 will shoot up to approximately £1,865 per year for dual fuel customers.
That figure is an eye-watering increase of nearly 50% on the winter 2021-22 cap level of £1,277 per year, itself a record high. It’s also 12% up on Cornwall Insight’s last estimate, made only two months ago, of next summer’s price cap.
Further increases are still possible between now and February, when Ofgem puts a final value to the cap, the firm points out.
As Britain enters a winter likely to see as many as 4.4 million homes facing stark ‘heat versus eat’ dilemmas, the regulator last month fired the starting gun on its consultative review of its price cap methodology.
Cornwall’s latest blacker-than-black prognosis is based on Ofgem’s current protocol. The analysts says their forecasts’ pessimism reflects prevailing conditions, including
- continuing supply chokepoints for electricity and gas pushing wholesale prices even beyond records seen at the start of October
- geopolitical pressures affecting the European gas market, centring on Nord Stream 2
- cold winter weather
Cornwall Insight’s current prediction for next winter’s 2022-23 default tariff price cap stands at around £2,240 per year. But the firm concedes that number may change radically, before Ofgem formally announces it in August.
The year’s transfer of over 4 million customers of 26 failed suppliers under Supplier of Last Resort (SOLR) rules will also leave the nation’s energy users on the hook to the tune of £2.5bn, or around £90 per household, Cornwall Insight calculates. That figure does not a further £2.4bn in costs of rescuing the biggest failure, Bulb. For the latter, taxpayers are guaranteeing a £ 1.7 billion ‘turnaround’ loan.
“Based upon our assumption that those customers’ new suppliers will have had to purchase gas and electricity on the wholesale market to meet this new demand, the costs associated with these trades – compared to the wholesale cost element of Ofgem’s default tariff price cap – represent the lion’s share of this sum”, the analysts explain.
Dr Craig Lowrey, senior consultant for Cornwall Insight added: “With Ofgem examining a wide range of potential reforms to both the cap and the way in which the costs associated with supplier failures are recovered, we note that there is still a large amount of uncertainty relating to the level and structure of the cap”.
“However, with the energy supply sector still dealing with the exit of more than two dozen companies in a matter of weeks, the need to ensure resilience across the entire market is evident”.
Away from domestic customers managing new highs in energy costs, businesses too will face their own challenges without the protection of the default tariff price cap, the analysts conclude.