How optimistic people can be when the latest estimates paint a dire picture of the expected increase in energy bills?
ELN asked energy experts about what they think will happen from 1st October onwards when the new price cap will come into effect.
Professor Karen Turner, Director of the Centre for Energy Policy at the University of Strathclyde, told ELN that the October cap will involve a “largely gas price driven hike”.
Professor Turner explained that “rapidly fluctuating forecasts” of spiking wholesale gas prices “are driving dramatically changing predicted energy price cap changes in January and April”.
She added: “But the October cap announced this Friday will still involve a substantial, largely gas-price driven hike, impacting household gas and electricity bills.
“Moreover, the cap doesn’t protect businesses, so that the impacts of higher energy prices transmit to all aspects of the cost of living and further drive inflation. This all points to the need to control energy prices and slow inflation. Two key questions arise.
“First, why are gas-powered plants called on last in balancing supply and demand, thereby linking the consumer price to a small share of generation with such a high price? Why not call on it earlier, as we initially did with (then) costly renewables?
“Second, why are the costs of supplier failure earlier this year impacting standing charges, which are already variable across regions and types of consumers? Why now, the worst possible time?
“Standing charges account for a larger and, crucially, inflexible share of energy bills for lower users, including low-income households.
“Thus, people may be making undesirable cuts in energy use – risking health and well-being – with limited impact on their bills.”
ELN also spoke to Dr Timothy J. Dodsworth, Senior Lecturer in Law at Newcastle University about what expectations people should have of Friday’s announcement of the new price cap.
Dr Dodsworth said: “In terms of expectations for Friday, there are a number of factors which compound the issue. First, the new approach by Ofgem means that prices will be implemented sooner which means that consumers will feel the effect sooner than they have in the past.
“Second, Ofgem’s methodology is now taking into account that energy is more expensive in winter. Previously, energy companies would spread the cost over the year to balances prices – that is not possible when the price is set by Ofgem.
“Third, suppliers are likely going to act immediately and increase direct debits. Fourth, Ofgem is estimating the market in the future and current market predictions are showing a significant increase.”
