Tensions in the Red Sea have failed to derail the prospect of lower household energy bills from April, as our latest forecast for the April 2024 Default Tariff Cap (price cap) indicates. Predictions have fallen £40 p/a since December, with a typical dual fuel consumer1 now expected to pay an annual bill of £1,620. This would represent a 16% quarter-on-quarter decrease in household bills, which are currently set at of £1,928 per year for a typical consumer, a saving of £308.
Prices are forecast to remain lower than current prices throughout 2024, falling to £1,497 p/a in July, before rising slightly to £1,541 p/a in October.
European gas stocks remain at higher than expected levels for the time of year, reflecting the relatively mild winter. This, combined with fairly healthy supply conditions, has seen wholesale prices fall since November.
While concerns were raised about disruption to European gas supply with some Liquified Natural Gas (LNG) shipments being diverted away from the Red Sea, the UK is currently well-supplied by US LNG cargoes through the Atlantic market. Global supply conditions are also further aided by low LNG prices in the Asian market caused by mild weather and good availability in the region.
Despite the recent wholesale price drop, UK energy prices remain vulnerable to global events. Any potential disruption to supplies will weigh on market confidence, and we will need to keep a close eye on market fluctuations over the next few months.
Additionally, there are ongoing consultations on potential changes to the price cap, including the standing charge and bad debt collection, which could impact the overall price cap level.
Figure 1: Cornwall Insight’s Default Tariff Cap forecasts using new Typical Domestic Consumption Values (dual fuel, direct debit customer)
| QUARTERLY | New TDCV | Q224 CI Forecast | Q324 CI Forecast | Q424 CI Forecast |
|---|---|---|---|---|
| Electricity | 2,700 kWh | £849.32 | £784.39 | £816.62 |
| Gas | 11,500 kWh | £770.68 | £712.76 | £725.10 |
| TOTAL | £1,620.00 | £1,497.15 | £1,541.72 |
*Data from market close 17/01/2024
Source: Cornwall Insight
Figure 2: Default Tariff Cap forecasts, Per Unit Costs and Standing Charge (dual fuel, direct debit customer)
| Electricity | Q224 CI Forecast | Q324 CI Forecast | Q424 CI Forecast |
|---|---|---|---|
| Standing Charge (£/day) | 0.58 | 0.58 | 0.59 |
| Per Unit Costs (p/kWh) | 23.56 | 21.21 | 22.29 |
| Gas | |||
| Standing Charge (£/day) | 0.30 | 0.30 | 0.31 |
| Per Unit Costs (p/kWh) | 5.73 | 5.24 | 5.32 |
*Data from market close 17/01/2024
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:
“Concerns that events in the Red Sea would lead to a spike in energy bills have so far proved premature, and households can breathe a sigh of relief that prices are still forecast to fall. Healthy energy stocks and a positive supply outlook are keeping the wholesale market stable. If this continues, we could see energy costs hitting their lowest since the Russian invasion of Ukraine.
“Though recent trends hint at possible stabilisation, a full return to pre-crisis energy bills isn’t on the horizon. Shifts in where and how Europe sources its gas and power, alongside continued market jitters over geopolitical events, mean we are likely still facing costs hundreds of pounds above historical averages for a while, potentially the new normal for household energy budgets.
“Whether we can achieve long-term reductions in the UK’s energy costs will hinge on breaking free from the volatility of imported energy prices. To make a real and lasting impact, we need to commit to a sustained transition to homegrown renewable energy sources, reducing our reliance on the volatile international energy market.”
Reference:
Ofgem’s Typical Domestic Consumption Values (TDCVs) are now set at 2,700 kWh per annum for electricity, and 11,500 kWh per annum for gas.
Notes to Editors
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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.
"Healthy energy stocks and a positive supply outlook are keeping the wholesale market stable. If this continues, we could see energy costs hitting their lowest since the Russian invasion of Ukraine."
Dr Craig Lowrey Principle Consultant
