Today, nine million homes will experience a rise in their energy bills as the latest price cap set by Ofgem comes into effect. This increase coincides with the UK bracing for a significant cold snap, with a 720-mile wall of snow predicted to reach as far south as Devon in the New Year.
Weather maps from WXCharts have turned various shades of purple, indicating imminent snowfall. From New Year’s Day, the average energy bill for a home in England, Scotland and Wales will rise by 1.2% to £1,738 a year, following the energy regulator’s gas and electricity hike.
However, Cornwall Insight, an independent energy analyst, has forecasted further financial strain for households in April when the next price cap is set, predicting it to rise to £1,785 within 12 weeks. The price cap applies to households who pay for their electricity and gas by either standard credit, Direct Debit, a prepayment meter or an Economy 7 (E7) meter.
The four million households who pay for energy via pre-payment meters (PPMs) are expected to struggle the most financially. High prices and the concentration of energy use in the winter months mean most households with a PPM will need to spend more than 30% of their income on energy costs during the winter months.
The Resolution Foundation has warned that many of these households will fall further into debt as they often use a PPM because they were already in debt to their energy supplier, reports the Express.
Cornwall Insight anticipates the cap to increase to £1,785 a year for a typical dual fuel consumer, marking nearly a 3% rise from today’s cap of £1,738 a year when it is next set in April. Dr Craig Lowrey, principal consultant at Cornwall Insight, noted that early December saw a slight dip in wholesale energy prices, driven by easing supply tensions in Europe.
He stated: “However, geopolitical instability saw prices rebound in the second half of December, with the market surging last week due to new uncertainty over the Ukraine transit deal and the higher level of withdrawals from EU gas storage facilities.”
“The news of a rise in our forecast will be disappointing to households’ who will no doubt have been hoping for relief from recent cap rises. However, the turbulence in wholesale markets – a level of volatility we haven’t seen for months – reminds us to remain cautious of predictions, which could very well increase or decrease several times before the April cap is set.”
“With a Trump presidency on the horizon, and an uncertain geopolitical situation in the Ukraine and the Middle East, wholesale market volatility looks set to remain.”
He added: “LNG export plans under a second Trump presidency, mean we are expecting that our cap forecasts will continue to display a high degree of variability.”
In addition to the wholesale market developments, Ofgem is poised to make changes that could impact consumer bills. “Looking further ahead we are currently expecting July’s price cap to fall from April’s cap, with October expected to see rises again. The April cap is due to be announced near the end of February,” Mr Lowrey added.