Anticipated average household energy bills are set to decrease by approximately £500 starting in July, suggesting that Vladimir Putin’s strategy to leverage Russia’s gas reserves for geopolitical ends has not succeeded.
Cornwall Insight, a widely regarded forecaster, predicts that the typical energy bill for a household will be reduced to the yearly equivalent of £2,053 during the July-September period. This prediction is grounded on an anticipated adjustment to the energy price ceiling.
This reduction denotes the first time in nearly three years that energy bills have decreased, as gas prices across Europe continue to plummet following their peak last year in response to Putin’s assault on Ukraine.
Between March and June, the regulatory body Ofgem established the price limit at £3,280, a decrease from the previous quarter’s maximum of £4,279.
Nevertheless, the Government’s energy price guarantee, which has been in effect since October, has maintained household bills at around £2,500 annually.
The government has covered the discrepancy between the regulated price cap and its own energy price guarantee by making payments to energy firms.
This July will represent a dual first: the first occasion on which the price cap has fallen below the level of the guarantee, and the first reduction in consumer bills in two years and nine months.
Cornwall Insight’s principal consultant, Dr Craig Lowrey, expressed: “As numerous individuals continue to struggle with the cost-of-living crisis, we can hopefully start to cautiously believe that the days of exorbitantly high energy bills are coming to an end.”
However, bills are still significantly higher than they were before the crisis. The price cap was a mere £1,042 annually in October 2020.
The much-needed relief to households arrives in spite of Russia’s persistent attempts to compel Europe into withdrawing their support for Ukraine by cutting off gas supplies and driving up prices.
The benchmark European gas price spiked to an astounding €339 per megawatt hour last August, caused by concerns over continental supplies following the shutdown of the Nord Stream 1 pipeline.
However, as of last Friday, the European benchmark was valued at €30 per megawatt hour.
Market values have seen a decline due to the EU’s concerted actions to minimize energy consumption, increase gas reserves, and import a greater volume of liquified natural gas (LNG) from overseas. The presence of a comparatively mild winter has further pushed prices down, as it has led to reduced demand.
Dr Lowrey assured that energy bills would maintain relative stability over the forthcoming nine months.
Nonetheless, it is not anticipated that domestic energy expenses will revert to their pre-2020 levels, which were roughly £1,000 less, until at least the end of the current decade.
Further, Dr Lowrey remarked, “Those yearning for a revival of the lower bill amounts seen at the decade’s commencement will likely be left disappointed. Regrettably, it appears that these elevated prices could become the status quo.”
Cornwall Insight has projected that the price cap would continue to fall to £1,976 during the last quarter of 2023, before climbing to £2,045 in the first three months of 2024.
Similarly, Investec has forecasted the price cap for July to settle at approximately £2,044 annually.
The subsequent price cap figure will be confirmed by Ofgem on May 25, with it becoming effective from July 1.
The cap undergoes a quarterly review and is implemented in the months of April, July, October, and January. This energy price guarantee was established to safeguard households amidst concerns that bills could soar to £4,000 by January.
These prices mirror the mean bill for British households. The cap is actually determined based on the highest price per kilowatt hour for customers on a standard or default tariff.
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