Falling forward wholesale energy prices will result in the price cap dipping below the government’s £3,000 Energy Price Guarantee later this year, an industry expert has predicted.
However, Investec analyst Martin Young also warned that while forward wholesale electricity and gas costs have “fallen markedly” over the past month, prices remain elevated against historic levels and that the cost-of-living crisis remains “real and devastating for many”.
The current level of the price cap, as announced by Ofgem in November, is £4,279 – up 21% on the prior quarter’s figure.
In his latest forecast Young said the higher forward prices of November/ early December are already locked-in for the April 2023 cap and that Investec’s estimate for this stands at £3,458.
However the estimate for July’s cap is now £2,640, while October’s cap is forecast to be £2,704. Both estimates are lower than the government’s £3,000 Energy Price Guarantee effective from April.
“This must be a relief to government, as it would see the cost of support in fiscal 23/24 significantly below that of fiscal 22/23,” he said.
Young explained that the cost to government in the 23/24 financial year would be an estimated £22 billion cheaper than 22/23, with the data suggesting a cost of around £3 billion in the next financial year.
Despite the lower forecasts, Young said social tariffs in energy are “clearly needed” and that it was up to the Treasury, the Department for Business, Energy and Industrial Strategy and Ofgem to work together to put these in place “as soon as possible”.