Price cap forecast to remain above current level until end of 2024

The predictions for the Default Tariff Cap in this piece are out of date please click HERE to find our most up to date forecasts.

Forecasts for the 2024 Default Tariff Cap (price cap) have risen in response to growing volatility in the global wholesale energy market. Latest predictions, place a typical¹ dual fuel consumer’s January energy bill at £1,923 per year, with a small rise to £1,929 in April 2024.

While already predicted to increase in January, the cap had been expected to fall below the current £1,834 typicalbill rate for the rest of 2024². However, the most recent forecasts indicate that the price cap is likely to remain above the current level at least until the end of the year.

Recent events around the world have left their mark on energy price predictions. Disruptions to the Finnish Balticconnector, the Israel-Hamas conflict and industrial action at gas production facilities in Australia have collectively caused price cap predictions for April, July and October to jump by 5-6% (£91-£110) since September.

The UK’s increasing reliance on Liquified Natural Gas (LNG) as it moves away from Russian pipeline gas has made it particularly susceptible to disruptions in the LNG market. The ramifications of events in Gaza, which caused production to cease at key Israeli gas fields, saw lower gas output to Egypt where it is processed into LNG, impacting supply and prices. It has been a similar issue with Australian production, where LNG exports have been affected by industrial disputes affecting some of the country’s main assets.

While supply was not directly affected as in the Gaza conflict, the Finnish Balticconnector, primarily used for exports from the EU, experienced a disruption that has raised questions about the potential for similar damage elsewhere, leading to increased market volatility in the global market, once again pushing up prices.

The uncertainty over potential disruption going into winter will raise more questions over the supply-demand balance as temperatures start to decline.

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: Default Tariff Cap forecasts, 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 said:

The jump in price cap predictions since September has once again highlighted the vulnerability of UK energy prices – and customer bills – to geopolitical events. The Russian invasion of Ukraine demonstrated there is a delicate balance in the global energy market which can easily be disrupted by unexpected events, it looks as though the current situation is repeating that pattern.

The government needs to take steps to proactively limit the impact that such situations have on the UK’s energy market, and already stretched households, rather than reacting to events as they occur. Stop-gap measures such as social tariffs and one-off payments are helpful, but they are not a long-term solution.

While the UK will never be entirely protected from global price increases, reducing the country’s reliance on imported energy and prioritising sustainable, domestically sourced energy will help protect the country from international energy shocks, and work to stabilise prices over the next decade.”

Reference:

1. Ofgem has revised the Typical Domestic Consumption Values TDCVs, from October 2023 they are now set at 2,700 kWh per annum for electricity, and 11,500 kWh per annum for gas.
2. Cornwall Insight’s predictions from 27^th September

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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.