The UK energy price ceiling will rise to £1,972.53 in July as conflict in the Middle East is likely to have a lingering impact on energy, according to the latest forecasts from Cornwall Insight.
The standard price cap will rise by £332 compared to the next April cap (£1,641), Cornwall Insight predicts, an increase of more than 20%.
On March 4, Cornwall Insight began predicting a rise in the price ceiling for July due to “strong increases in wholesale gas prices due to the escalating conflict in the Middle East.” The March 4 announcement said “while the jump is cause for concern, the assessment period for the July price cap has only just begun”; Since that forecast, Cornwall Insight has increased its forecast from £1,801 to £1,972.53.
As a net importer of gas, Britain is exposed to global wholesale prices; the consequences are further exacerbated by the fact that the electricity price is currently linked to the gas price. The US-Israeli attacks on Iran, and Iran’s subsequent retaliatory measures in the region, have impacted oil and gas production in the Gulf States, and the partial closure of the Strait of Hormuz could potentially disrupt up to 20% of global oil and gas supplies.
As US President Trump has touted successful peace negotiations in recent days, International Energy Agency (IEA) Director Fatih Birol has warned that the conflict’s lasting effects on energy prices could surpass both the oil shocks of the 1970s and the 2022 energy crisis following Russia’s invasion of Ukraine.
Next announcements in the autumn budgetBefore the current conflict in the Middle East broke out, the UK government cut the energy price ceiling for April by 7% by shifting most of the Renewable Bond levy from energy bills to general taxes. But Cornwall Insight’s forecasts suggest this relief will be short-lived.
Today, Energy Minister Ed Miliband suggested he will try to delink electricity prices from gas prices to reduce energy bills and protect consumers from price shocks.
Miliband, a long-time advocate for a net-zero policy, has reportedly said the government is committed to accelerating its push for clean energy to protect the UK’s energy system from global shocks. Last week he announced a series of measures “further and faster” to achieve UK energy securityfocusing on solar energy, enabling change and accelerating the development of nuclear energy.
“There can be no energy security as long as we are so dependent on fossil fuels,” the Energy Minister said.
On March 11, the week the conflict in Iran broke out, the independent Climate Change Committee (CCC) published research showing that the cost to Britain of achieving Net Zero by 2050 would be high. less than the cost of a new energy shock similar to the post-war war in Ukraine in 2022. The non-profit research institute Energy and Climate Intelligence Unit (ECIU) estimates that the 2022 energy crisis cost the UK government £183 billion over four years – CCC’s report estimates that the cost of Net Zero would average around £4 billion per year.
In its price forecasts, Cornwall Insight said the “strong increase in energy bills is likely to reinforce calls to increase the rollout of renewable generation in the UK.” Solar Power Portal investigated this possibility in a long read earlier this month.
At the same time, there are increasing calls to open up new North Sea oil and gas licenses to protect Britain from the impact of gas price shocks. Chairman of government-backed GB Energy, Juergen Maier, said that while new oil and gas drilling would not reduce energy costs, other economic benefits such as tax revenues and jobs from new drilling would accrue to the country. Octopus Energy CEO Greg Jackson has also called for “pragmatic decisions” around UK oil and gas drilling.
