Energy bills are unlikely to revert to normal levels by the end of the decade, Cornwall Insight has warned ahead of the latest price cap announcement.
Dr Craig Lowrey, principal consultant at Cornwall Insight, told City A.M. the group’s forecasts indicate elevated energy bills will be normalised by sustained higher wholesale costs.
“We have modelled the cap out until the end of the decade and those numbers indicate – based upon where the wholesale markets is – we don’t see household energy bills returning to the levels we saw in 2021-22 this decade,” he said.
Household energy bills conventionally traded between £1,000 and £1,300 per year prior to the rebound in demand following the pandemic – which saw 30 suppliers collapse – and Russia’s invasion of Ukraine which saw a near 20-fold hike in gas prices.
Since then, the price cap first spiked to £1,971 per year in April 2022, before eventually peaking at £4,279 per year this January.
It estimates the mechanism will slide from £2,074 per year in the third quarter to £1,925 per year this winter – but further decreases over the next 12-15 months are not expected.
Ofgem is set to update the price cap for the fourth quarter of 2023 this Friday.
Lowrey recognised there was “a lot of water to flow under the bridge” before the end of the decade, but argued a more dramatic slide in power prices was dependent on separating the increasingly cheap cost of renewable power from gas prices.
At the moment, both are factored into electricity costs – with record gas prices last year driving up bills across the country – causing energy bills to rise.
Severing both prices from each other was a central process in the government’s review of the electricity market arrangements (REMA)– however it was unclear when Downing Street would have the time to push through reforms with an election coming up next year.
“Even if we do see traction from REMA, it is not going to be until the latter part of the decade – certainly. We have a general election between now and then. It is possible that track of legislation will be derailed,” he said.
The potential benefit of this would not just be to create cheaper energy bills, but also to show households the value of boosting renewable power – with the push to net zero so far seeming to offer little visible benefit to customers.
He argued a decoupling would help “from the point of view of optics.”
Lowrey explained: “There has been so much debate about the linkages between gas and power prices, and the need for consumers to truly experience of a low carbon revolution in their energy bills. The renewable transition has been ongoing but consumers have not seen that.”