Energy price cap will rise to £1,800 from July after spike in gas prices, says expert forecaster

The energy price cap could rise by more than £150 in the summer if gas prices remain high due to conflict in the Middle East, according to an expert forecaster.

Cornwall Insight said a typical dual-fuel household would pay £1,801, based on price cap estimates between July and September.

This represents a £160 increase from the ceiling price in April, following sharp increases in gas prices in recent days as Qatar’s state energy utility, which accounts for a fifth of liquefied natural gas (LNG) trade, halted production.

This could translate into much higher energy bills as the UK imports some LNG from Qatar, which is now the world’s second largest gas supplier behind the US.

Earlier this week, Stifel analysts warned that households could be paying an average bill of £2,500 under the price cap, recalling the 2022 bill rise after Russia invaded Ukraine.

While Cornwall Insight’s forecast was lower, he said the July price cap review period had only just begun and the key was ‘how high gas prices will stay and how long this period of volatility will last’.

Cornwall Insight’s chief consultant, Dr. Craig Lowrey said: ‘Whilst the increase is remarkable, immediate concerns need to be alleviated.

‘We are just at the beginning of the evaluation period for the July cap and what happens in energy markets over the next three months will be the important factor, rather than this increase alone.’

The energy consultancy said that although Europe and the UK ‘do not have much confidence in Qatar LNG’, reduced supply will increase competition in the market and the UK and Europe ‘may need to increase prices to compete for these cargoes’.

It predicts residential gas prices will rise from 5.74p/kWh to 6.74p/kWh, while electricity prices could see a smaller rise from 24.67p/kWh to 25.94p/kWh.

Fixed charges will increase from 57.21p per day to 59p per day for electricity and from 29.09p per day to 30p per day for gas.

Last week, regulator Ofgem announced the April price cap would fall by £117 to £1,641 after the government announced plans to move some costs away from energy bills.

‘But this latest forecast brings the role of wholesale markets back to the fore and shows how open UK households are to international market movements,’ Lowrey said.

‘Events like this strengthen the case for more domestically produced renewable energy production. ‘Reducing the UK’s dependence on volatile global gas markets is the most permanent way to protect households from future price shocks.’

Gas prices started to retreat today; European gas futures fell more than 9 percent to €48.30/mWh, with UK prices a similar amount at 128 pence per therm.

Ofgem boss Jonathan Brierley told MPs it was too early to predict where July’s price cap might go.

‘Anybody who draws a line at the price today and says this is going to happen at the price ceiling, I don’t think that’s sound because it’s moving too fast.’

But he added: ‘Although we are in the early stages of this conflict, if the Strait of Hormuz remains closed for an extended period it is likely to put significant upward pressure on the prices customers will pay for gas and electricity.

‘For example, in electricity, gas often continues to determine the price.

‘I know there is now a lot of speculation about the scale and scope of these price changes. But actually it’s too early to tell.

‘In my experience, gas traders find it extremely difficult to calibrate the types of risks we face and therefore market forecasts are not a reliable guide to the future.’

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