Price cap forecasts rise amid wholesale market volatility

Ahead of the January Default Tariff Cap (price cap) coming into force, Cornwall Insight has released its latest forecasts for the April 2025 cap. The April cap is now expected to rise to £1,785 a year for a typical dual fuel consumer¹, nearly a 3% increase on January’s cap of £1,738 a year, itself a rise from October.

Early December saw a slight dip in wholesale energy prices, driven by easing supply tensions in Europe. However, geopolitical instability saw prices rebound in the second half of December, with the market surging last week due to new uncertainty over the Ukraine transit deal and the higher level of withdrawals from EU gas storage facilities. This all affected our view of consumer bills in 2025.

These factors, combined with the significant uncertainty over the US LNG export plans under a second Trump presidency, mean we are expecting that our cap forecasts will continue to display a high degree of variability.

On top of the wholesale market developments, Ofgem are set to make changes that could impact consumer bills. One notable adjustment is the likely extension of the Supplier Bad Debt Allowance beyond the end of March. Initially introduced to cover additional support credit for some prepayment meter customers, this currently stands at approximately £30 a year.

Additionally, the impact of the Energy-Intensive Industry (EII) network charge exemption scheme remains uncertain. This government-legislated initiative compensates EIIs for part of their network charging costs, which could further influence overall pricing.

While these factors may drive bills higher, Ofgem is also exploring other cost measurement adjustments that could reduce bills by £10 or more.

Looking further ahead we are currently expecting July’s price cap to fall from April’s cap, with October expected to see rises again. The April cap is due to be announced near the end of February.

Figure 1: Cornwall Insight’s Default Tariff Cap forecast using new Typical Domestic Consumption Values (dual fuel, direct debit customer) – without potential Ofgem reforms

Source: Cornwall Insight

Note: The figures do not include potential Ofgem reforms which could increase or decrease this energy forecast. These will be included in forecasts once the detail is confirmed by Ofgem.

Figure 2: Default Tariff Cap forecast, Per Unit Costs and Standing Charge (dual fuel, direct debit customer) – not including potential Ofgem reforms

Source: Cornwall Insight

Note: All figures are national average unless otherwise stated. All intermediate and final calculations are rounded to two decimal places. Totals may not add due to rounding. The figures do not include potential Ofgem reforms which could add more than £20 to the price cap forecast.

Dr Craig Lowrey, Principal Consultant at Cornwall Insight, “The news of a rise in our forecast will be disappointing to households’ who will no doubt have been hoping for relief from recent cap rises. However, the turbulence in wholesale markets – a level of volatility we haven’t seen for months – reminds us to remain cautious of predictions, which could very well increase or decrease several times before the April cap is set.

“With a Trump presidency on the horizon, and an uncertain geopolitical situation in the Ukraine and the Middle East, wholesale market volatility looks set to remain.

“To add to the wholesale turbulence, other cost measures being decided upon by Ofgem and the government have the potential to move the cap up or down. As we look ahead, consumers must brace for continued fluctuations.

“Ultimately, the security of energy supply, and Ofgem’s evolving policies will shape the trajectory of bills as we move into 2025 and beyond. It’s crucial for policymakers and industry stakeholders to work together to ensure fair and sustainable energy pricing for households.”

1. Ofgem’s Typical Domestic Consumption Values (TDCVs), are set at 2,700 kWh per annum for electricity, and 11,500 kWh per annum for gas.