Cornwall Insight has announced its final forecast for the January - March Q1 2025 Default Tariff Cap (price cap) following the closure of the observation window1 on 15 November.
For a typical dual fuel household2 we predict the January price cap to be £1,736 per annum. This is a rise of 1% from the current price cap which was set at £1,717 per year for a typical consumer. Ofgem will announce the January cap on Friday 22 November.
Given the price cap rise in October, many will have been hoping to see a fall in the cap for January. Unfortunately, forecasts show that prices will be staying relatively high for the remainder of winter.
The cap level is a reflection of a relatively volatile wholesale market, influenced by supply concerns tied to geopolitical tensions, maintenance on Norwegian gas infrastructure, weather disruptions, amongst other smaller factors. Despite prices stabilising in comparison to the past two years, the market remains very sensitive to global events. This is leaving prices substantially above historic averages.
Looking further ahead, we currently forecast the cap will drop slightly in April 2025 and again in October 2025.
Given that higher prices are likely the new normal, it is important that the government look at ways to protect the vulnerable from high energy bills. Whether this be through social tariffs, to bring energy in line with telecommunications, changes to the benefit system, or review of the price cap mechanism. Ofgem is currently undergoing a comprehensive review of the price cap with potential changes to elements such as the standing charge expected over the coming year.
Recent policy initiatives show the government is recognising that the lasting solution to high energy bills lies in reducing reliance on the international wholesale market by transitioning to UK-produced renewables. While there will be upfront costs, this shift is essential to building a sustainable and secure energy system for the future. We hope to see increasing progress on the renewables transition over the next few years.
Figure 1: Cornwall Insight’s Default Tariff Cap forecast using new Typical Domestic Consumption Values (dual fuel, direct debit customer)
Source: Cornwall Insight
Figure 2: Default Tariff Cap forecast, Per Unit Costs and Standing Charge (dual fuel, direct debit customer)
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.
Dr Craig Lowrey, Principal Consultant at Cornwall Insight:
“Our final price cap forecast for January indicates, as expected, bills will remain largely unchanged from October. Supply concerns have kept the market as volatile as earlier in the year, and additional charges have remained relatively stable, so prices have stayed flat. While we may have seen this coming, the news that prices will not drop from the rises in the Autumn will still be disappointing to many as we move into the colder months.
“Fuel poverty has occupied political agendas for years, with little long-term progress. This winter, millions of households say they will not heat their homes to recommended temperatures, risking serious health consequences. With it being widely accepted that high prices are here to stay, we need to see action. Options like social tariffs, adjustments to price caps, benefit restructuring, or other targeted support for vulnerable households must be seriously considered.
“Long-term, our transition away from the volatile global wholesale market toward sustainable, home-produced renewables can help to secure our energy future. Although the transition does require upfront investment, it promises lower bills down the line. The government needs to keep momentum on the transition while acknowledging that immediate support is essential for those struggling now. Inaction is a choice to leave people in the cold."
Reference:
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The period of time Ofgem use to monitor the market and calculate the wholesale element of the cap.
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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.
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About the Cornwall Insight Group Cornwall Insight is a leading provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Great British, Irish and Australian energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes and policy frameworks, and a practical understanding of how markets function.
The government needs to keep momentum on the transition while acknowledging that immediate support is essential for those struggling now.
Dr Craig Lowrey Principal Consultant
