The energy price cap is set to rise by £209 over the current level, driven by “prices remaining elevated throughout the observation window” following global events such as the war in the Middle East.
Cornwall Insight forecasts that the UK energy price cap will increase by 13% to £1,850.13 per year between July and September, reflecting a sustained rise in wholesale power prices.
This increase is attributed to several macroeconomic factors, including US and Israeli missile strikes on Iran and the resulting blockade of the Strait of Hormuz, which has disrupted around 20% of global oil and gas trade.
The consultancy released its forecast this week after the observation window closed on 18 May. It also noted that Ofgem is considering revising its definition of an “average household” for the price cap, as energy usage across UK households has declined.
In response, Cornwall Insight published two forecasts: a cap of £1,850.13 for an average household under the current Ofgem definition, and a cap of £1,666.52 for an average household under Ofgem’s proposed new benchmark.
With energy use in the UK typically falling during summer, Cornwall Insight expects “the impact to be reduced” on average household bills in the coming months. However, principal consultant Dr Craig Lowrey warned that this could become a “bigger concern” in autumn when energy usage rises again.
“Over the past few months, our forecasts have shifted from showing virtually no quarter-on-quarter increase to a 13% rise in current bills, due to the impacts of the Middle East conflict,” Lowrey said.
“A summer rise will be painful for households, but the greater concern is October when demand traditionally increases. If the cap remains at a similar level, the government will need to consider targeted support for the most vulnerable.”
A less ‘painful’ forecast than earlier this year
While still “painful,” Cornwall Insight’s latest forecast is lower than projections made earlier this year. In March, the consultancy expected the price cap to reach as high as £1,972.53 by July, more than £100 above current levels, compared to this week’s forecasted increase.
Lowrey emphasized that expanding renewable energy capacity and decoupling UK electricity prices from gas is the only “real path” to lowering bills and protecting against geopolitical disruptions. This week, the UK advanced several renewable projects: independent power producer Aukera began commercial operations at a 37.6MW solar PV portfolio, and Island Green Power secured planning consent for a 125MW battery energy storage system in East Devon.
Last week, a report from think tank Ember found that 15% of British power generation is now de-linked from gas prices. With 10GW of renewable energy operating under the government’s Contracts for Difference (CfD) scheme, a significant portion of power is generated independently of volatile overseas gas markets.
However, the ongoing success of the CfD scheme depends on continued government support, and uncertainty over the UK’s long-term political future remains a challenge for developers.
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