Energy market analysts say they don't expect costs to return to pre-crisis levels until the end of the decade. Cornwall Insight has announced its final forecast for the next quarter's price cap, which is due to be announced by regulator Ofgem on May 25.
It predicts that the cap for the July to September period will be set at £2,053 for a typical household. This is an average figure and does not mean households will pay no more than that per year, as the cap is per unit of energy used.
If it proves to be accurate, it will mark a significant fall from the current cap of £3,280 for April to June. However, average bills were capped at £2,500 by the Government's Energy Price Guarantee (EPG). The predicted fall to £2,053 from July will bring the cap under the EPG.
While the fall is sure to be welcomed by hard-pressed households, the new figure would still be more than £1,000 per year compared to pre-pandemic levels. It would still be well above the pre-crisis cap of £1,277 seen in October 2021.
A spokesperson for Cornwall Insight said: "Despite the cap falling from the sky-high prices of the past two years, the figure remains over £1,000 per year more than the price cap levels seen prior to the pandemic. We do not currently expect bills to return to pre-2020 levels before the end of the decade at the earliest.
"However, we hope to see the reappearance of more competitive fixed-rate energy tariffs as prices begin to stabilise, providing consumers with additional options to manage their energy costs. Prices remain subject to wholesale energy market volatility, and our reliance on energy imports means geopolitical incidents could still have a significant impact on energy prices.
"We note that several industry consultations and calls for evidence on different components of price cap modelling could impact the cap’s level and structure. While these uncertainties are not expected to materially impact the July cap, they could affect the cap level from October and beyond, meaning our forecasts may change – however, we will not have clarity on these until later in the year."
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Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “Under these predictions, an average consumer would see bills drop by around £450 compared to the existing levels of the Energy Price Guarantee, with bills currently predicted to stay relatively stable over the next nine months. As many people continue to suffer from the cost of living crisis, this will hopefully bring some cautious optimism that the era of exceptionally high energy bills is behind us.
“That is unfortunately where the good news ends. While bills are falling, the cap is still expected to remain comparatively high against historic norms, and those hoping to see a return to the kinds of bills seen at the start of the decade will be disappointed. Regrettably, it looks as if these prices may become the new normal.
“The forecasts call into question the cap’s purpose and its continued place in the energy market. While it has provided some level of protection for consumers against market volatility, it is clearly still not shielding the most vulnerable from enduring severe financial hardship. As our forecasts into 2024 indicate, energy bills will remain at levels that are still unaffordable for many.
“The cap was never intended as a permanent solution and we urge, as we have done previously, for a comprehensive review of the cap and the exploration of alternative mechanisms, such as social tariffs, that can effectively safeguard the most vulnerable. It is crucial to prioritise the development of sustainable solutions that address the affordability challenges faced by energy consumers.”
