Electricity And Gas Prices To Fall Slightly In July But Will Remain High For Many Years To Come

22nd June 2023

Cornwall Insight release final forecast for July price cap.

Cornwall Insight has announced its final forecast for the Q3 2023 Default Tariff Cap (price cap) following the closure of the observation window1 on 18 May. Based on our analysis, we predict the cap for a typical household2 to be £2,053 equivalent per year for the period July to September 2023 inclusive. The official cap announcement by Ofgem is scheduled for 25 May. This has been updated - see link at bottom of the page

The predictions show a decrease of £1,227 from the April cap which was set at £3,280. Currently, consumers are not directly impacted by the price cap due to the Energy Price Guarantee (EPG), which limits a typical household's energy bill to £2,500 equivalent per year. However, starting from July, household bills will revert to the price cap.

Despite the cap falling from the sky-high prices of the past two years, the figure remains over £1,000 per year more than the price cap levels seen prior to the pandemic. We do not currently expect bills to return to pre-2020 levels before the end of the decade at the earliest. However, we hope to see the reappearance of more competitive fixed-rate energy tariffs as prices begin to stabilise, providing consumers with additional options to manage their energy costs.

Prices remain subject to wholesale energy market volatility, and our reliance on energy imports means geopolitical incidents could still have a significant impact on energy prices.

We note that several industry consultations and calls for evidence on different components of price cap modelling could impact the cap's level and structure. While these uncertainties are not expected to materially impact the July cap, they could affect the cap level from October and beyond, meaning our forecasts may change - however, we will not have clarity on these until later in the year.

Figure 1: Cornwall Insight's Default Tariff Cap forecasts (dual fuel, direct debit customer, national average figures)

QUARTERLY Q3 2023 (Jul-Sept) CI Forecast Q4 2023 (Oct-Dec) CI Forecast Q1 2024 (Jan-Mar) CI Forecast
Electricity £1,048.31 £1,060.35 £1,084.74
Gas £1,005.47 £915.35 £960.22
TOTAL £2,053.77 £1,975.70 £2,044.96
Figure 2: Default Tariff Cap forecasts, Per Unit Cost and Standing Charge including VAT (dual fuel, direct debit customer, national average figures)

Electricity Q323 Forecast Q423 Forecast Q124 Forecast
Standing Charge (£/day) 0.53 0.54 0.54
Per Unit Costs (p/kWh) 29.48 29.80 30.65
Gas Q323 Forecast Q423 Forecast Q124 Forecast
Standing Charge (£/day) 0.29 0.30 0.30
Per Unit Costs (p/kWh) 7.49 6.70 7.08
Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:

"Under these predictions, an average consumer would see bills drop by around £450 compared to the existing levels of the Energy Price Guarantee, with bills currently predicted to stay relatively stable over the next nine months. As many people continue to suffer from the cost-of-living crisis, this will hopefully bring some cautious optimism that the era of exceptionally high energy bills is behind us.

"That is unfortunately where the good news ends. While bills are falling, the cap is still expected to remain comparatively high against historic norms, and those hoping to see a return to the kinds of bills seen at the start of the decade will be disappointed. Regrettably, it looks as if these prices may become the new normal.

"The forecasts call into question the cap’s purpose and its continued place in the energy market. While it has provided some level of protection for consumers against market volatility, it is clearly still not shielding the most vulnerable from enduring severe financial hardship. As our forecasts into 2024 indicate, energy bills will remain at levels that are still unaffordable for many.

“The cap was never intended as a permanent solution and we urge, as we have done previously, for a comprehensive review of the cap and the exploration of alternative mechanisms, such as social tariffs, that can effectively safeguard the most vulnerable. It is crucial to prioritise the development of sustainable solutions that address the affordability challenges faced by energy consumers."

To See the latest Cornwall predictions go HERE