Ofgem's chief executive, Jonathan Brearley, told MPs that the regulator expects the energy price cap for October to December to rise by more than the £800 previously predicted, which would have taken it to £2,8001. The evidence session took place on 11 July 20221.
The acknowledgement came days after industry forecasters raised their own estimate. Cornwall Insight's June forecast for the October 2022 and January 2023 caps was £2,981 and £3,003 a year respectively, an average of £2,992; this was updated on 8 July to £3,245 and £3,634, an average of £3,3041. The Energy and Climate Intelligence Unit (ECIU) said the dual fuel price cap was forecast to reach £3,300 this winter, against an average dual fuel price cap bill of around £1,100 for the period January 2019 to September 20211. Future caps will last three months each, rather than six months as to date, so the ECIU took averages across the six months from October 2022 to March 20231.
ECIU attributed over 90% of the rise in bills to wholesale gas costs, calculating that gas would have added £2,000 to the average bill. Wholesale gas costs were set to have added around £1,200 to gas bills, an increase of over 500% from before the crisis, and gas would have pushed up electricity wholesale costs on bills by over £700 a year, an almost 400% increase1. On top of over £1,900 of extra costs directly caused by wholesale gas prices, ECIU said the gas crisis was responsible for around a further £100 on bills to deal with the £2.7bn collapse of over thirty energy suppliers, not including the taxpayers' bill of £1.9bn for Bulb Energy's special administration1.
Other components were described as broadly stable. VAT at 5% would add just over £100 compared with average pre-crisis levels, and levies funding insulation for low-income households and early renewables projects were set to remain stable into the winter at around £1551. ECIU said new renewables were set to pay back £1.3bn up to next spring through Contracts for Difference, and that recent government auctions secured a further 11GW of wind and solar capacity at a quarter of the price of gas power generation, including 7GW of offshore wind at £45/MWh in 2021 prices1.
"With the gas price so high and volatile, and set to remain so, the question is: where's the plan?"
Why it matters for households
The cap sets the maximum a supplier can charge a typical household on a default tariff, so a rise above the previously predicted £2,800 feeds directly into what a home pays from October. The price cap history shows how far the level has moved since 2019, and the energy price cap explains how the default tariff cap is set. Because the increase is dominated by wholesale gas costs rather than network or policy costs, a household's exposure tracks its gas use and the gas share of its electricity. ECIU said energy efficiency schemes such as ECO had contributed savings of £1.2bn per year under current prices, and that the ECO insulation scheme was knocking £600 off the bills of fuel poor households1. It also said hitting the 50GW offshore wind target by 2030 would take savings to £34bn per year in a future gas crisis, equivalent to £500 per household1. Ofgem's role is set out in what the energy regulator does, and why a bill can be higher than the cap covers the gap between the headline figure and what a particular home pays.
What happens next
The October to December cap level had not been announced at the time of the evidence session; Ofgem's confirmation was still to come1. The cap period itself runs from October to December, with the following cap covering January to March 20231.