The price cap on default tariffs could rise to almost double its current level for the next winter period starting in October, an industry analyst has warned.
Ahead of Ofgem’s announcement on Monday (7 February) of the new price cap for the summer period beginning in April, Investec senior analyst Martin Young wrote in a circular that the company’s final prediction is an increase of 51% from £1,277 to £1,924 assuming there are no interventions or changes to the price cap methodology.
The firm estimated the wholesale cost elements of the new cap at £130/MWh for electricity and 128p/therm for gas.
Young added that if current forward prices are used to estimate the level of the cap from October, there would be a further increase of 27% to around £2,448, with wholesale costs coming in at £188/MWh for electricity and 191p/therm for gas.
He said a £1,924 price cap from April could see year-on-year inflation hit around 7% during the month, whilst a cap of £2,448 from October could contribute to year-on-year inflation of around 3% in the latter part of 2022 and early 2023.
“We await various imminent consultation decisions from Ofgem, but these are unlikely to solve the cost of living crisis, and upwards inflationary pressures. Politicians need to move on from ‘partygate’ and bring forward solutions,” he added.
Soaring wholesale costs and a flurry of supplier failures has led to a package of wide-ranging measures from Ofgem, including the introduction of financial stress testing for retailers, proposed changes to the price cap and some temporary measures to combat market volatility.
There are concerns however about the lack of government support ahead of the anticipated price increases.
Writing for Utility Week recently, EDF’s managing director Philippe Commaret warned the crisis was too big for the sector to tackle alone and that it was an “overriding priority” to convince the government to provide immediate targeted support to vulnerable households.
He added: “We’ll continue working closely with government and Ofgem to make sure that a strong, sustainable and resilient energy sector, which is intrinsic in delivering net zero, can emerge from this crisis.
“But for here and now – we must focus our efforts on those in society who need us most and we implore the government to act now.”