Households will have to pay an extra £500 a year for their energy from April, despite the fact that Ofgem is poised to announce a reduction in the energy price cap next week.
Cornwall Insight has estimated that the new cap will be set at £3,294 equivalent per year for the average household.
However, due to the Energy Price Guarantee (EPG), consumers will not be directly impacted by the price cap, as the government will limit a typical household’s energy bill to £3,000 equivalent per year.
This is a rise from the current rate of £2,500, meaning that consumers will be forced to pay more despite the fact that wholesale prices are down.
If the forecast is correct and the level of the EPG is lower than the April price cap, the government will pay suppliers the difference. The greater the disparity between the cost of the two schemes, the higher the governmental expense. The rise in the EPG is estimated to save the government approximately £2.6bn across the entire scheme.
Last year, Ofcom proposed to review the price cap every three months, instead of twice a year, in an attempt to bring down prices for consumers sooner, or raise them sooner to stop energy firms from going under.
Cornwall Insight also shared its predictions for the July and October price caps, with further falls estimated to £2,153 in July and then £2,161 from October.
These two caps would be lower than the EPG, which will mean the government will effectively incur no cost for the scheme during this period.
However, the firm added that it is uncertain about the accuracy of its estimations, as ongoing industry consultations could impact the forecasts for the remaining 2023 periods.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “Regrettably, the forecast for April looks set to leave the price cap above the increased Energy Price Guarantee level, meaning average annual consumer bills will effectively jump by 20 per cent (£500).
“However, this is before we take into account the end of the £400 energy rebate scheme in March, meaning that the cost of energy for households will increase by even more. While tumbling cap projections are a positive, unfortunately already-stretched households will be seeing little benefit before July.
“In the latter half of the year, we see a notable shift in our predictions, as the cap falls below the government support price for the first time since the introduction of the EPG in October.
“This gives us some hope for optimism as far as the wider energy debate is concerned. While prices under the cap remain considerably higher than historic norms, the combination of falling wholesale prices and an increase in the EPG could see the return of competitive tariffs and with it the chance for consumers to take back some control over their energy bills.”
In December last year, Ofgem allocated distribution network operators around £500m less than they originally said was needed for network reinforcement, leading to concerns that the electricity grid will not be prepared for net zero.
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