Cornwall Insight has forecast that the UK energy price cap will rise by 13% to £1,850.13 per year between July and September, in response to a continued rise in wholesale energy prices.
The limit is expected to increase by £209 from the current limit due to “pricing”. [remaining] across the entire observation window” following a number of macroeconomic changes, including the US and Israeli missile attacks on Iran and the subsequent blockade of the Strait of Hormuz, which disrupted the supply of about 20% of the world’s oil and gas trade.
The advisor published his forecast of changes to the price ceiling this week, after the closure of the observation window on May 18. It also noted that Ofgem is considering changing the definition of an ‘average household’ in its price cap as energy consumption in UK households falls.
In response, Cornwall Insight has published two price ceiling forecasts; the limit of £1,850.13 refers to an average household under the current Ofgem definition, while there is a limit of £1,666.52 for an average householder under Ofgem’s “proposed” new benchmark for an average home.
This, combined with the fact that energy consumption in Britain tends to decline over the summer, means Cornwall Insight expects “the impact to diminish” on average homes’ bills over the coming months. However, Cornwall Insight’s chief consultant Dr Craig Lowrey said this could lead to “greater concerns” in the autumn when energy consumption increases again.
“Over the past few months we have seen our forecasts shift from virtually no quarter-over-quarter increase to a 13% increase in current accounts – with this change due to the fallout from the conflict in the Middle East,” Lowrey explains.
“A summer increase will be painful for households, but the biggest concern is October, when household demand traditionally picks up again. If the cap remains at a similar level to July, the government will need to seriously consider targeted support for the most vulnerable.”
A less ‘painful’ prediction than earlier this year
Although “painful,” Cornwall Insight’s latest forecast is a reduction from the price ceiling forecasts made earlier this year. the consultant expected the price ceiling to rise to as much as £1,972.53 in Julyan increase of over £100 from current levels, compared to this week’s forecast rise.
Lowrey said building more renewable energy capacity and decoupling UK electricity prices from gas is the only “real path” to reducing bills and providing protection against geopolitical economic disruption. Aukera started commercial operations with a solar PV portfolio of 37.6 MW and developer Island Green Power has secured planning permission for a 125 MW Battery Energy Storage System (BESS) in East Devon.
This was indeed evident last week from a report by think tank Ember 15% of UK energy generation is decoupled from the gas power priceand with 10GW of renewable energy currently operational under the government’s Contracts for Difference (CfD) programme, there is currently a significant generation portfolio generating power independent of volatile overseas gas markets.
However, the continued success of the CfD program is dependent on continued government support, so uncertainty over Britain’s long-term political future remains an obstacle for developers. At this week’s Renewables Procurement & Revenue Summit, held in London by Solar energy portal publisher Solar Media, political uncertainty was identified as the “biggest challenge” facing the UK energy transition.
Read more coverage of the summit here.
