Energy bills could hit £1,929 in July

Data from Cornwall Insights has found that a typical gas and electricity bill is forecast to reach £1,929 a year from July under Ofgem’s quarterly price cap, up £288 (or 18%) from the current cap.

The slight reduction in the forecast follows a partial steadying in wholesale markets after a pause in energy infrastructure strikes and signals of a potential ceasefire in the Middle East conflict. Wholesale gas prices surged after the Middle East conflict disrupted tankers moving through the Strait of Hormuz, a major route for global Liquefied Natural Gas (LNG), and damaged key oil and gas facilities in the Gulf. Markets are still feeling the impacts of the conflict and remain highly volatile.

With the observation window – the period of time Ofgem use to calculate the wholesale element of the cap – now at its midpoint, the wholesale price rises seen over the course of March will already be locked into the cap. Unless wholesale prices fall below pre-conflict levels – which looks unlikely given the scale of disruption and the uncertain repair timeline to key infrastructure in the region – a higher price cap in July is effectively unavoidable. The size of the increase depends on the duration of the conflict. It is worth noting that current wholesale costs remain well below the 2022 extremes, meaning that, despite the turbulence, the scale of this crisis is not yet comparable to the price shock households faced three years ago.

Should high gas, power and oil prices continue, the effects will go beyond household bills. Inflationary pressure and rising project costs could start to weigh on investment decisions and slow the pace of new infrastructure, although the full extent of these knock-on effects will take time to become clear.

Dr Craig Lowrey, Principal Consultant at Cornwall Insight said “Over a month into the Middle East conflict, energy markets are experiencing the kind of volatility not seen since 2022. While prices may have calmed a little over the past week, prior to the conflict, our forecasts pointed to a relatively stable price cap through the summer, now we are forecasting rises of 18%.

“With Ofgem’s price cap announcement just weeks away, infrastructure damage and continued disruption to marine traffic through the Strait of Hormuz are limiting the potential for any meaningful wholesale price fall. As a result, some of the increase is already effectively baked in. A rise in July is pretty much unavoidable, but how high prices go remains to be seen,

“There is some relief in the timing, summer is when energy demand is at its lowest, which should soften the impact on household expenditure on energy. If higher wholesale prices continue, it will be the effects on the October cap that have the most impact, and that is when the question of government support for households is likely to be revisited.

“We know however, that short-term relief is not a sustainable solution to higher energy bills – particularly given that this is the second such crisis in five years. There are no shortcuts to long-term energy price stability. The fundamental solution lies in reducing dependence on the gas wholesale market, and that transition demands both investment and time.”