Predictions have lurched from bad to worse, as Chris Choi reports
Energy regulator Ofgem is to blame for part of a massive hike in energy bills, experts have said, as they forecast the price cap would hit more than £4,200 in January.
Ofgem is expected to hike the price cap on energy bills to £3,582 per year for the average household from the beginning of October, from £1,971 today according to a new forecast.
In a new dire outlook for households, energy consultancy Cornwall Insight said bills are set to soar again to around £4,266 for the average household in the three months from the beginning of January.
Analysts at Cornwall Insight have predicted further rises in 2023, warning the cap could reach £4,427 from the start of April.
Money Saving Expert Martin Lewis described the latest predictions as "tragic news."
It comes as Ofgem last week announced changes to how it will calculate the price cap on energy bills going forward.
“While our price cap forecasts have been steadily rising since the summer 2022 cap was set in April, an increase of over £650 in the January predictions comes as a fresh shock,” said Craig Lowrey, principal consultant at Cornwall Insight.
“The cost-of-living crisis was already top of the news agenda as more and more people face fuel poverty – this will only compound the concerns.
“Many may consider the changes made by Ofgem to the hedging formula, which have contributed to the predicted increase in bills, to be unwise at a time when so many people are already struggling.”
However, he also defended Ofgem’s decision, which will hopefully lead to lower bills in the second half of next year.
This will happen because Ofgem is making it easier for energy suppliers to recover their costs. By doing this, fewer suppliers will fail – and the cost of those failures will not need to be passed on to customers.
“With many energy suppliers under financial pressure, and some currently making a loss, maintaining the current timeframe for suppliers to recover their hedging costs could risk a repeat of the sizable exodus seen in 2021,” Mr Lowrey said.
“Given that the costs of supplier failure are ultimately met by consumers through their energy bills, a change which means that this is less likely is welcome, even if the timing of it may well not be.”
Part of the increase in the forecast is also due to rising wholesale energy prices, Cornwall said.
The price cap forecasts from Cornwall showed bills reaching £4,427 in April, before finally dropping slightly to £3,810 from July and £3,781 from October next year.
Dr Lowrey said the government must take action to step in and protect households from the runaway costs.
The government has already promised £400 to every household, and extra help for the more vulnerable.
“If the £400 was not enough to make a dent in the impact of our previous forecast, it most certainly is not enough now,” Mr Lowrey said.
He said that the current price cap is not controlling consumer prices and damaging suppliers’ business models, and asked if it was fit for purpose.
“The government must make introducing more support over the first two quarters of 2023 a number one priority.
“In the longer-term, a social tariff or other support mechanism to target support at the most vulnerable in society are options that we at Cornwall Insight have proposed previously.
“Right now, the current price cap is not working for consumers, suppliers, or the economy.”
Want a quick and expert briefing on the biggest news stories? Listen to our latest podcasts to find out What You Need To Know...
Martin Lewis has also called on the government to "wake up" and deliver an immediate plan of action to help the "millions" for whom energy bills would be unaffordable."
Addressing the ongoing battle for Downing Street between Liz Truss and Rishi Sunak, Mr Lewis said the top-job hopefuls "must not ignore this portentous national cataclysm anymore."
"They are all in the same party. Let's call on them to come together for the good of the nation rather than personal point scoring.""People's livelihoods, mental wellbeing and in some cases very lives depend on this," Mr Lewis added.
The Money Saving Expert also said the rise from the predicted January price cap that was used to calculate the package of support announced by the government in May would swallow the support package whole.
He added this would "leave many destitute."