UK household energy bills may be lower than expected after wholesale market collapse

Household energy bills are forecast to be hundreds of pounds lower than expected in the second half of this year after a sharp fall in wholesale prices fell below the government’s £3,000 price guarantee.

According to Investec, the annual energy bill for a typical household is now estimated to be £2,640 from July and £2,704 from October, while Cornwall Insight estimates £2,800 per year from July and £2,835 from October.

The government’s Energy Price Guarantee subsidizes tariffs so that a household with typical use will currently pay no more than £2,500 a year, rising to £3,000 a year from April.

Although wholesale energy prices have eased significantly over the past month, unusually warm winter weather enabled Europe to maintain healthy levels of gas in storage, reducing fears of supply shortages and blackouts . As a result, bills in the second half of the year may be lower than anticipated.

Respected analysts at both Investec and Cornwall today revised their forecasts for the cost of supplying energy in the later parts of this year. This suggests the cost of the energy price guarantee to the government may be much lower than expected, with no outlay subsidy bill from July.

The price guarantee could cost the government only £3 billion in 2023-24, compared to a forecast of £12.8 billion by the Office for Budget Responsibility at the time of the November budget. This is down from around £25 billion over winter: without the guarantee, bills would have risen from January to March by an average of £4,279 a year under Ofgem’s price cap.

The new forecasts are likely to increase calls for the government to cancel April’s planned increase of £3,000 to the energy price guarantee. Pantheon Macroeconomics said yesterday that “eliminating the April increase in consumer energy bills now looks economical”.

Investec analyst Martin Young said the bill “remains high compared to historic levels, and with other bills rising, the cost-of-living crisis remains real and devastating for many”.

Craig Lowrey, principal consultant at Cornwall Insight, said: “While it is positive to see a fall in the price cap forecast, household bills are set to remain high. With the energy price guarantee increasing in April, the second half of the year is still a typical Households will be faced with bills that are well above historic levels and are facing costs that could make many people sick.

The Energy Price Guarantee was unveiled in September and was originally due to remain at £2,500 a year until 2024, but in November Jeremy Hunt announced that tariffs would rise to £3,000 a year from April to reduce the scheme’s cost to the taxpayer. year will be

Since then wholesale gas and electricity prices have dropped significantly for the coming year.

Benchmark wholesale gas prices in Britain have halved over the past month and are now lower than they were a year ago, before Russia invaded Ukraine and disrupted energy supplies to Europe.

The UK month-ahead gas contract fell 5 per cent today to around 162p per therm, down from more than 340p in early December and a high of 640p in August. However this is still more than three times the average of around 50p per therm in the decade before the energy crisis starts in 2021.

Because energy companies buy their energy upfront, and Ofgem’s price range on standard tariffs reflects this, the recent fall in wholesale prices will not be reflected in bills until the end of the year.

Energy purchases for the April to June period began in mid-November when prices were much higher, meaning some of the higher costs are already locked into the April price range. Cornwall estimates the bill in April would rise to £3,545 if it were not for the price guarantee and said the main impact of lower wholesale prices would not be seen until the third quarter.

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