A forecast indicates that consumers may see a decline in their energy costs later this year, but they are still likely to see an increase in the coming months.
In April, a less generous government ceiling will raise the average UK household’s gas and electricity cost from £2,500 to £3,000.
Warm weather in Europe and high gas storage levels, however, have resulted in a decline in wholesale pricing for suppliers.
Forecasters predict that a typical annual cost could fall to $2,800 in the summer.
If Cornwall Insight’s forecast is accurate, 26 million households will once again be subject to Ofgem’s price cap instead of the government guarantee.
This could result in a lower-than-anticipated cost to the government and, consequently, to taxpayers.
Craig Lowrey, the chief consultant at Cornwall Insight, stated, “We must maintain prudence since the government has virtually guaranteed a turbulent wholesale energy market – one that is likely to stay volatile throughout the year.”
“Even if energy prices remain at present levels, which is very large, the expenses to the government for the whole duration of the Energy Price Guarantee would still contribute to government borrowing and will ultimately be passed on to consumers in the form of increased taxes,”
Even if the weather remains generally warm, domestic bills will be significantly higher than they were before the pandemic and are unlikely to return to their pre-pandemic levels for several decades.
How the price limits operate
The vast majority of British households have variable or default gas and electricity rates. In England, Wales, and Scotland, the price per unit of energy is capped at a level deemed reasonable by the energy regulator Ofgem. The limit is adjusted every three months.
At the beginning of January, a household consuming an average amount of gas. And electricity would have been required to pay £4,279 per year due to the enormous costs faced by suppliers.
Therefore, the government covered a portion of these costs for British citizens. Due to its Energy Price Guarantee. The average annual cost for a household is currently £2,500 and will increase to £3,000 in April.
This is still a substantial increase compared to what individuals were accustomed to paying. During winter 2021-22, the average annual bill was £1,278.
Extra cost-of-living payments largely assist the most vulnerable in meeting these increased expenses.
Although costs are exceedingly high, wholesale prices paid by suppliers before selling to consumers have begun to decline.
The winter in Europe has thus far been unseasonably warm, with several locations setting temperature records. In addition, many European nations had already filled their gas storage tanks.
If these lower wholesale prices persist, Cornwall Insight forecasts that consumers will reap the benefits later in the year.
2015 energy expenses
The average annual household bill may decrease to $2,800 from July to September. Then remain largely steady at $2,835 from October to December.
This is by no means assured since a cold snap in the upcoming months. And increased global tensions might fast push up wholesale costs, which soared following Russia’s invasion of Ukraine.
A significant portion of the gas that continued to flow through pipelines from Russia in 2022 has been cut off. So analysts warn that if a cold spell in January or February depletes Europe’s stocks. It will be much more difficult to replenish them, resulting in much higher costs next winter.
According to Cornwall Insight, the cost of government support through the price guarantee is still estimated to equal £37 billion.
In the meantime, businesses are awaiting an announcement from the government. Regarding what it will do when a program reducing their energy rates expires at the end of March.
Companies anticipate that government assistance would be halved. However, it is possible that support for large energy users will remain similar to current levels.
