The success of fill gas storage efforts could reduce prices by half by next year.
Britain’s energy bills freeze could be less expensive than expected by the beginning of next year. City forecasters believe that gas prices will plummet this winter after a successful scramble across Europe for reserves.
According to Deutsche Bank estimates, a halving of gas prices over the next months would bring average household bills down below the £2,500 limit established by the Government’s Energy Price Guarantee. This would reduce the cost of intervention.
Friday’s announcement by the Chancellor that the cost of support for households and businesses over the next six months could reach £60bn was made Friday.
Despite promises of greater energy intervention in Europe and success in filling storage before winter, wholesale gas prices are down from their record highs.
Forecasters predict that prices will fall further. Benchmark European and UK natural gas prices fell for four weeks consecutively, with gas storage in Europe almost 90% full.
Sanjay Raja, Deutsche UK economist, stated that household energy bills are now close to £5,000 for households if the price cap is still being used to determine costs.
If prices in Europe were to fall by half this winter, as some forecasters predicted, UK bills would rise to £2,500. This is below the limit set by the Government’s Energy Price Guarantee.
He stated that it would then be the cost to suspend the green levy since the Ofgem Price Cap would drop to around £2,500.
“The green levy suspension would cost the Chancellor approximately £4.2bn per year at £150 per household.”
Although the guarantee was expected to cost up to £150bn at the time it was announced, the final blow to Exchequer will be determined by the direction of wholesale gasoline prices this winter.
Goldman Sachs projects that European gas prices will drop from EUR200 per megawatt-hour earlier in the month to below EUR100 after the storage boost. The UK’s gas prices closely follow those of Europe and have fallen by over 50% since August’s record peak.
As markets baulk at the massive borrowing planned by the Chancellor, cutting the cost of energy bills support would provide a significant boost to the Exchequer.
After Mr Kwarteng’s pledge to increase bond sales in order to fund tax cuts, UK Government borrowing costs rose by the highest level ever recorded on Friday. The benchmark 10-year gilt yield shot up to 3.8pc Friday due to plans to sell £72bn more gilts to finance the mini-Budget.
This is a level not seen for over ten years.
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