Cornwall Insight’s response to the announcement of the October price cap

The predictions for the Default Tariff Cap in this piece are out of date please click HERE to find our most up to date forecasts.

Ofgem has today announced the October Default Tariff Cap (price cap) at £1,923 a year for a typical dual fuel consumer¹ for the final three months of 2023. This is based on the regulator’s current definition of an average household’s gas and electricity use², and shows a 7% decline from July’s cap.

The average use, known as the Typical Domestic Consumption Value (TDCV), used to calculate the cap will be lowered by Ofgem with effect from October³. Under these new reduced consumption values, the cap will stand at £1,834 a year for a typical dual-fuel consumer.

Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:

While this modest drop in the cap won’t make a substantial difference to household energy bills, it is encouraging that prices from October are moving in the right direction. Unfortunately, our predictions for 2024 show prices continuing to languish well above pre-pandemic prices – something which is currently forecast to remain the case for the remainder of the decade.

The recent impact of the potential industrial action at Australian liquified natural gas (LNG) production facilities on wholesale energy prices across Europe, underscores the vulnerability of the country’s energy system to global events. While both the threat of Australian strikes and the impact of Russia’s invasion of Ukraine on energy prices have subsided for now, both highlight the risks such events pose to customer’s bills.

The debate around the merits and continued validity of the cap has been compounded by the current cost-of-living crisis. While there is no one simple solution to high energy costs, there are steps that can be taken. Protection of the vulnerable must be a primary concern, and the introduction of social tariffs such as those already in place for water and telecommunications remains an option.

Elevating demand-side strategies, like government funding for home insulation and energy efficiency enhancements, could lead to reduced bills. At the same time, a broader approach of prioritising domestically generated energy to lower the influence of the global energy market on UK prices would reduce the impact of international supply shocks.

Only through a comprehensive approach to tackling the issue of high energy bills, can we start to deliver a resilient and secure energy landscape for all.”

Figure 1: Cornwall Insight’s Default Tariff cap forecasts using new Typical Domestic Consumption Values (dual fuel, direct debit customer)

Source: Cornwall Insight

Figure 2: Cornwall Insight’s Default Tariff Cap forecasts using current Typical Domestic Consumption Values (dual fuel, direct debit customer)

Source: Cornwall Insight

Figure 3: Default Tariff Cap forecasts, Per Unit Costs and Standing Charge (dual fuel, direct debit customer)

Source: Cornwall Insight

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.

Reference:

1. All figures are for a customer paying by direct debit.
2. Ofgem’s current Typical Domestic Consumption Values (TDCVs) are 2,900 kWh per annum for electricity and 12,000 kWh per annum for gas.
3. Following a consultation process, Ofgem has revised the TDCVs, from October it will be reducing them to 2,700 kWh per annum for electricity, and 11,500 kWh per annum for gas.

• 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.