Last updated 7 February 2022
Energy Bills Forecast
So, the energy price cap came in worse than expected. Our central forecast, at £1,915, was towards the top of the range. The actual figure came in at £1,971 meaning that the average household is going to see their bills increase by £693 from 1 April 2022. That’s a thumping great increase for a household with just the average level of energy usage. That comes to an extra £58 per month.
That’s a whole lot of extra money each and every month.
And that is on top of the £96 increase on 1 April 2021 and the further £139 increase on 1 October 2021. Three increases in a row adding £928 in bills in the space of a year.
Customers paying by prepayment meter of quarterly by cash or cheque will do even worse.
A summary of the most important of the announcement and how it will affect you are detailed in our comprehensive Energy Price Cap Guide.
Is the energy price cap going up again?
Possibly. Indeed, the current expectation is that it probably will, which is why the energy rebate announced by government does not actually kick in until 1 October 2022. However, another increase is not a given. We will update our energy price cap model shortly and set out updates on where the next level of the energy price cap is pointing.
As an aside, for those wondering why our forecast missed the outturn. For us it was all down to the Supplier of Last Resort (SoLR) levy costs. This is where the new supplier picks up the tab for rescuing a failed energy supplier and hands the bill onto everyone else. While we know these costs were coming, we were not quite sure when. In the end, they came in at £68. Adding those into our £1,915 would push it up to £1,983, vs the actual £1,971. Not bad at all eh?
How the energy bill forecast is calculated?
Extreme volatility in gas and power markets makes forecasting difficult and subject to wide margins of error. However, in order to provide some guidance on the magnitude of the next increase, we thought we would take a stab at it.
First things first. These projections aim to provide a very rough ballpark figure for the next level of the energy price cap. That’s it. No more, no less. Please treat them as such. They are for guidance only.
The calculations are based on the level of current and forward wholesale gas and electricity prices. While wholesale energy costs are not the only costs that go into the energy price cap calculation, they are the main one. Indeed, given record high energy prices they are the only ones that really matter. Other costs (network charges, policy costs, operating costs and so forth) will change over time but
(1) exhibit significantly less volatility, and
(2) tend to cancel each other out.
That is, increases in some will tend to offset reductions in others. But even if they don’t cancel fully, changes in other costs are insignificant compared to the wild changes in wholesale energy costs. They can therefore be safely ignored.
Taking the current level of the energy price cap (£1,277) as the base level, we add the following.
- Increases attributable to wholesale energy costs since 1 Oct 2021 up to the calculation date. These are already effectively banked and therefore reasonably certain.
- A projection of future increases, from the calculation date to the rest of the energy price cap calculation period, using real traded price data from GB energy futures markets.
The projection element of the forecast will vary with wholesale energy costs, hence the changes in the projection over time.
How often is the energy bills forecast updated?
We aim to update the forecast weekly and will publish the record over time. The intent behind showing the record is to see whether the pressure on the next increase is trending upwards, downwards, is flat or is just plain directionless or random. In the event that there are exceptional swings in wholesale prices we may publish an ad hoc forecast to capture this (as for 5 October 2021).
Why the forecast is shown as a range?
You will hopefully see that we are not making point forecasts. Given the limitations of our approach we are not so foolhardy (or arrogant) as to believe we can get anywhere close to a single integer value. Instead, we present the forecast within a £50 range, although even that might be stretching the accuracy a bit.
Also, for the eagle-eyed amongst you, you will notice that the projection does not exactly match the current level (£1,277) + the increase. We have taken the liberty to round things up a tad ((+£3). Working with a baseline which is not a roundish type of number (Ofgem really does make this stuff up), and then adding another range to it tends to imply a level of accuracy which is really not justified. Basically, we wanted to make the figures usable within the realms of the accuracy that we could best provide.
Anyway, you get the picture. These forecasts are there for guidance only – please don’t bet the house on them.
(BTW, if you spot anyone making point forecasts for the next level of the energy price cap you can safely assume that they are one or all of the following; arrogant, ignorant, arrogant and ignorant, an economist, a consultant, an arrogant, ignorant consulting economist. Just ignore them).
Energy Bills Forecast 2022
Update – 2 February 2022
With the 1 April 2021 level of the energy price cap set to be announced tomorrow, 3 February 2022, we are publishing out final energy bills forecast. Barring any manipulation in the headline number, by either Ofgem or BEIS (not improbable), we expect the new level to come in at £1875- £1925. This means an increase of £600- £650 for a haousehold with average energy usage. Brutal!
Let’s see how accurate our modelling was.
Update – 5 January 2022
Exceedingly mild weather conditions in Europe over the New Year,holidays – with breaking mild temperatures in the UK – combined with increased LNG shipments towards Europe, have led to continued falls in wholesale gas and electricity prices over the Christmas and New Year period. Q1 22 Wholesale gas prices fell 63% between 22 Dec and 31 Jan 2021, with Winter 22 prices falling by 50%.
The return of much colder temperatures since, has seen wholesale gas prices rebound by around 30% over the past 2 days. But even after this rebound, Winter 22 prices are some 50% off their recent record highs, with Winter 22 prices 35% lower.
This is all very good news for consumers, right? Yes, but…. As welcome as these moves are, they are coming far too late in the day to make much of a difference.
Firstly, the good news. Recent falls in wholesale energy prices do make a difference. The implied level of the 1 April 2022 energy price cap has dropped to the £1925 – £1975 range. This is £75 lower than 2 weeks ago.
On the flip side, 70% of this increase is already locked in, with the balance still accruing daily. The best that consumers can expect, barring government intervention, is an increase of around £460 to £1740. But with each passing day, this increases by another £5 – £10.
As an aside, wholesale gas prices for UK delivery actually went negative (briefly) on New Year’s Day 2022 when gas flows swamped exceedingly low demand. You read that right – negative. Consumers facing another 50%+ hike in energy bills will, unsurprisingly, find it very hard to grasp that.
Update – 24 December 2021
As we head towards the ened of the year, the outlook continues to deteriorate. The primary driver now is Winter 22 gas prices which have more than doubled in less than 1 month. This is even after the 26% sell off we saw in the last 2 trading days before Christmas.
Barring any significant and sustained falls in wholesale energy prices, we are now looking at price capped energy bills of over £2,000 come April 2022. That represents and increase of around £750 (58%). Of that increase, £400 is already locked in, with the balance accruing at a rate of approximately £10/day (every day).
Update – 14 December 2021
The outlook for domestic energy bills in the UK has deteriorated markedly over the past 2 weeks.
While it has been extreme price pressures and price volatility over the coming winter months that has been the primary driver of changes to the forthcoming energy price cap, this has now spilled over into Winter 2022 pricing.
Winter 2021 prices remain extremely volatile, and on an uptrend. They are back near all-time highs having risen by 35% over the past 2 weeks.
Winter 2022 wholesale gas prices have been essentially flat for most of November, taking some of the sting out price volatility at the short end. However, over the past fortnight, Winter 2022 gas prices have rocketed by 60%. Given that Winter 2022 is now the larger contributor to the energy price cap calculation, this is terrible news for consumers.
In view of the further significant increases in wholesale energy prices, we have hiked our forecast for the next energy price cap to £1,900. As things stand, this means that standard energy bills are set to increase by around £600-£650 on 1 April 2022.
Update – 15 November 2021
Over the past 10 days, price volatility for Winter 2021 wholesale gas prices has remained very high. We have seen double digits % swings in gas prices in 4 out of the last 6 trading sessions. The overall trend has been upwards.
The Winter 2022 outlook is both much more stable and flat. Prices have barely moved over the past 10 days although remain almost 150% higher than they were a year ago.
On balance, the implied increase for domestic energy bills has crept up again, but still by not by enough to warrant a change in the forecast. We are still looking at an increase of around £350, with a third of that already locked in.
Update – 5 November 2021
Over the past week, there has been a lot of volatility in wholesale gas prices over the 2021 winter months (mainly up) but generally flat and stable prices for Winter 2022. On balance, the implied increase for domestic energy bills is up versus last week, but not by enough to warrant a change in the forecast. We are currently looking at an increase of around £350, with 40% of that already locked in.
(Forecast as at...)
|Energy bill forecast|
|Energy bill forecast
|2 Feb 2022||£1,875 - £1,925||£600 - £650|
|05 Jan 2022||£1,925 - £1,975||£650 - £700|
|24 Dec 2021||£2,000 - £2,050||£725 - £775|
|14 Dec 2021||£1,875 - £1,925||£600 - £650|
|30 Nov 2021||£1,675 - £1,725||£400 - £450|
|15 Nov 2021||£1,600 - £1,650||£325 - £375|
|05 Nov 2021||£1,600 - £1,650||£325 - £375|
|29 Oct 2021||£1,600 - £1,650||£325 - £375|
|26 Oct 2021||£1,700 - £1,750||£425 - £475|
|22 Oct 2021||£1,650 - £1,700||£375 - £425|
|15 Oct 2021||£1,700 - £1,750||£425 - £475|
|13 Oct 2021||£1,650 - £1,700||£375 - £425|
|5 Oct 2021|
(End of day)
|£1,825 - £1,850||£550 - £600|
|5 Oct 2021|
|£2,025 - £2,075||£750 - £800|
|30 Sep 2021||£1,725 - £1,775||£450 - £500|
Energy Price Cap Changes
And, for the record, here is the history of energy price cap changes since it was introduced in the UK on 1 January 2019.
If you would like to be kept updated of changes to this forecast, you can follow us on twitter. We will also post updates there Follow @_energyscanner