Energy Bills Forecast

Last updated 15 November 2021

Energy Bills Forecast

With wholesale gas and electricity prices trading at near record levels, one thing seems certain; energy bills are set to rocket (again).

The Energy Price Cap was increased by another £139 on 1 October 2021. Energy bills for a typical household with average energy usage now stand at £1,277. This is £235 (23%) more than they were just 1 year ago. Larger energy users pay considerably more. A full history of energy price cap changes is shown in the Table at the bottom of the page.

The 1 October 2021 energy price increase will blow an unwelcome hole in many people’s finances. However, it is nothing compared to what is coming next. Given the that way the energy price cap is calculated, current near record wholesale energy prices are already affecting the level of the energy price cap in April 2022. As things currently stand, we are headed for a much bigger increase when the energy price cap is next reviewed and increased, on 1 April 2022.

But how much of an increase?

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.

How the energy bill forecast is calculated?

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.

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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 matter right now. 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 price data from GB energy futures markets. While the price points are actual reported market prices, their volatility leads to a much greater degree of uncertainty.

The projection element of the forecast will vary with wholesale energy costs, hence the changes in the projection over time. However, one thing is certain. As long as these very high energy prices persist, the guaranteed element of the price increase is growing by the day.

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 – 15 November 2022

Over the past 10 days, price volatility for Winter 2021 wholesale gas prices has remained very high, with 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 2022

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.

Date
(Forecast as at...)
Energy bill forecast
(£)
Energy bill forecast
increase (£)
Source: energyscanner.com
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
(Closing)
£1,825 - £1,850£550 - £600
5 Oct 2021
(Intra-day)
£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

Read more …   

Energy Price Cap Guide

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