All time high wholesale prices for winter have pushed the forecast for the Q4 and Q1 price caps to new highs with average energy bills for January 2023 alone now forecast to be above £500.
A rally in prices, caused by a drop in gas from Russia to Europe via the Nord Stream 1 pipeline, has increased the forecasts for the Q4-22 and Q1-23 price caps to £3,420 and £3,850 respectively.
Based on typical consumption patterns, this means the average consumer, paying by direct debit will now be facing a bill of £500 in January alone.
UK households will see a 225% increase in bills between September and November as they are not only hit by the forecast increase in the price cap, but also the typical seasonal increase in consumption.
The Ofgem price cap increased in April this year by over 50% compared to the winter cap. The full impact of this has yet to be felt by the consumer due to the typical customer having lower usage in the summer.
We currently forecast the price cap will increase to over £3,400 in October and further to over £3,800 in January, coinciding with the seasonal increase in demand of a household.
This will mean that customers’ monthly bills will dramatically increase as we move into the winter, jumping by 140% between Sept and Oct and 225% between Sept and Nov.
Prepayment customers will see this jump immediately in the amount that they need to top up their meters.
Additional Details
Based on the record high Gas and Power prices our forecasts for Q4-22 and Q1-23 have risen to £3,420 and £3,850 respectively. This follows on from a rise in the price cap in April 2022 from £1,277 to £1,971.
This means for an average customer in January they will be paying around £500 for their energy.
Based on the Ofgem TDCV’s, we forecast that the Q1-23 increase will see a low user paying £2,530 per annum and a high user £5,320.
Prices have increased off the back of gas and power prices rising to all time highs. The winter 22 gas price has risen nearly 10-fold since this time last year, and more than double the price of last winter’s gas.
ONS have median income at £31k – this means, based on our forecast of the Q1-23 price cap, that more than half the country could be pushed into fuel poverty. Average household income, UK - Office for National Statistics.
Given that over the summer heating demand is lower, as is electrical demand, the impact of the summer price increase is yet to be fully felt by customers.
As we go in to the winter, demand will increase again and coincide with when the new price cap will be implemented, causing a large, sudden change in the consumer bill.
For a direct debit customer this cost would be spread over the year as suppliers will typically take the annual forecast cost, divide by 12 and set the DD (taking in to account any debt etc.)
For pre pay customers, they have to pay at time of consumption so they will feel the increase in the price as it plays through in the winter.
Our forecasts currently show that average annual prices will have increased by over £1,800 between now and Q1-23. Although the additional support of £400 over the winter comes as welcome news, it will not be significant enough to prevent many households falling into fuel poverty. To put this into context, £400 over the 6 months of winter would equate to £65 a month. This would cover just 4 days of energy usage in January based on typical consumption patterns.
These are live forecasts which move day by day as the wholesale market changes. The wholesale cost of energy is one of many factors that go into producing our projected price cap levels. We continuously refine our assumptions around distribution and network charges, metering and green levies.
Ian Barker
Ian shapes the BFY vision and inspires our team to bring it to life, while remaining central to complex client engagements in Strategy, Commercial, and Operations.
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