The predictions for the Default Tariff Cap in this piece are out of date please click HERE to find our most up to date forecasts.
Cornwall Insight has announced its final forecast for the October – December Q4 2023 Default Tariff Cap (price cap) following the closure of the observation window1 on 17 August.
Starting from the October cap, Ofgem will be revising down its definition of an average household’s gas and electricity usage, referred to as the Typical Domestic Consumption Values (TDCVs)2 by around seven per cent per year for electricity and four per cent per year for gas. We are therefore releasing two predictions for Q4 2022 – one calculated using the current TDCVs to illustrate a quarter-on-quarter comparison, and one calculated using the new, lower TDCVs.
Based on our analysis, for a typical dual-fuel household3 we predict the Q4 2023 price cap to be:
£1,823 on the new lower TDCVs
£1,925 on the current TDCVs (like-for-like basis), which is a quarter-on-quarter percentage decrease of 7%.
The official cap announcement by Ofgem is scheduled for 25 August.
Looking further ahead, the recent gas price surge across Europe, primarily caused by the threat of strikes at LNG facilities in Australia, is forecast to yield an increase in the cap for January – March 2024 to £1,979 a year for a typical consumer on the new TDCVs which will be in force by then (£2,082 on the current TDCVs).
Figure 1: Cornwall Insight’s Default Tariff cap forecasts using new Typical Domestic Consumption Values (dual fuel, direct debit customer)
QUARTERLY
New TDCV
Q4 2023 CI Forecast
Q1 2024 CI Forecast
Q2 2024 CI Forecast
Q3 2024 CI Forecast
Electricity
2,700 kWh
£920.70
£987.02
£951.74
£922.92
Gas
11,500 kWh
£903.20
£992.74
£963.43
£944.08
TOTAL
£1,823.89
£1,979.76
£1,915.17
£1,867.01
Source: Cornwall Insight
Figure 2: Cornwall Insight’s Default Tariff Cap forecasts using current Typical Domestic Consumption Values (dual fuel, direct debit customer)
QUARTERLY
Old TDCV
Q4 2023 CI Forecast
Q1 2024 CI Forecast
Q2 2024 CI Forecast
Q3 2024 CI Forecast
Electricity
2,900 kWh
£980.90
£1,047.47
£1,010.21
£980.60
Gas
12,000 kWh
£944.81
£1,035.09
£1,004.63
£984.51
TOTAL
£1,925.71
£2,082.56
£2,014.84
£1,965.11
Source: Cornwall Insight
Figure 3: Default Tariff Cap forecasts, Per Unit Cost and Standing Charge including VAT (dual fuel, direct debit customer, national average figures)
Electricity
Q423 Forecast
Q124 Forecast
Q224 Forecast
Q324 Forecast
Standing Charge (£/day)
0.53
0.52
0.60
0.60
Per Unit Costs (p/kWh)
26.96
29.48
27.12
26.12
Source: Cornwall Insight
Gas
Q423 Forecast
Q124 Forecast
Q224 Forecast
Q324 Forecast
Standing Charge (£/day)
0.29
0.29
0.30
0.30
Per Unit Costs (p/kWh)
6.93
7.72
7.43
7.27
Source: Cornwall Insigh
Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:
“While a small decrease in October’s bills is to be welcomed, we once again see energy price forecasts far above pre-crisis levels, underscoring the limitations of the price cap as a tool for supporting households with their energy bills. As many, including energy regulator Ofgem have acknowledged, it is essential that the government explore alternative solutions, such as social tariffs, to ensure stability and affordability for consumers.
This slow reduction in bills, coupled with the volatility associated with the price cap, has seen many consumers taking advantage of the return of fixed price tariffs. Such an option is a two-sided coin, while many find comfort in locking in energy prices after the turbulent bills of the past couple of years, the potential for the price cap to dip below fixed rates is also worthy of consideration. With so many unknowns in the energy market, each household must decide for themselves what is the best avenue for them.
Looking ahead to next year, we see how events on the other side of the globe have impacted gas prices and our subsequent price cap predictions. In the same way as we saw wholesale market volatility impact our cap forecasts last year, similar developments risk causing sharp changes in household bills in 2024.
The UK’s structural reliance on gas imports means that it is highly susceptible to fluctuations in the international wholesale energy market. This situation continues to highlight the need for an energy policy that can accommodate the practicalities of a global energy market with support for domestically sourced, sustainable supplies which can help bring stable energy prices for all households.”
Reference:
- The period of time Ofgem use to monitor the market and calculate the wholesale element of the cap.
- Following a consultation process, Ofgem has revised the TDCVs, from October it will be reducing them from 2,900 kWh per annum for electricity to 2,700 kWh, and from 12,000 kWh per annum for gas to 11,500 kWh – these new numbers are now reflected in our forecast assumptions. These are Ofgem’s central case TDCV assumptions.
- All figures are for a customer paying by direct debit.
- Ends
Notes to Editors
For more information, please contact: Verity Sinclair at v.sinclair@cornwall-insight.com
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Want to keep up to date with Cornwall Insight’s price cap predictions? We have launched a dedicated webpage that will be regularly updated with our released predictions. This page also offers helpful answers to frequently asked questions about the price cap. Don’t miss out on this valuable resource – check out the page today: Predictions and Insights into the Default Tariff Cap
About the Cornwall Insight Group
Cornwall Insight is the pre-eminent provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British, and Irish 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.
