UK’s energy price cap predicted to rise by at least £66/year

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The latest forecasts from Cornwall Insight indicates that the default energy price cap will increase by approximately £66 from April 2021 to £1,108 per year for a typical dual fuel direct debit customer – from its current level of £1,042.

Robert Buckley, head of relationship development at Cornwall Insight, said: “Cornwall Insight modelling suggests it now looks likely that we will see a substantial rise in the summer energy price cap period, completely reversing the fall that was seen in October. This increase was driven mainly by a rebound in the wholesale cost of energy over the latter part of 2020 and into 2021. For example, April Baseload prices have risen 16% from 1 December to the present.

“Wholesale prices have been boosted by a combination of factors including rising worldwide energy costs and recovery of UK prices from the ground that they lost in Summer 2020 under the first COVID-19 lockdown period. In addition to this, is the impact of the current winter weather conditions on the market.

“While wholesale costs constitute a large proportion of the potential rise, there are other influences at play, including an increase in some of the policy costs in place to support renewable and low-carbon electricity generation.

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“This upward movement has been mitigated slightly by the fact that a one-off £15 COVID-related cost element in place for the Winter 2020-21 cap is now no longer present in the calculations for Summer 2021.

“However, Ofgem is currently consulting on introducing an additional charge for COVID-19 related bad debt. The regulator has estimated this to be a £21 charge for Summer 2021. This would represent a further rise to our predict view.

“Currently, competitive tariffs are priced around £180 below the current level of the cap, so customers can still make savings, especially if they are on a Standard Variable Tariff. So, it would be wise to check their deals before the price cap rises.

“The COVID-19 pandemic has brought a unique set of circumstances for suppliers having a difficult situation to juggle, facing higher wholesale costs and bad debt levels rising. Now, they will be assessing their commercial strategies closely. The decision of what to do is not a simple one, with fragile balance sheets, varying hedging strategies, and rising policy and network costs mean there is no one-size-fits-all answer.”

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