Energy price cap could hit £4,400 in January

Energy bills could hit £4,400 in January, new analysis has found, after the energy regulator tweaked its price cap methodology.

In a provisional forecast, energy consultancy Auxilione predicted the price cap on energy bills could reach £3,687 in October – close to double today's already record levels. This is higher than consultancy Cornwall Insight’s forecast of £3,358 and the prediction made by Investec bank that bills would hit £3,523.

Auxilione also warned the price cap could rise further to around £4,400 in January, possibly reaching £4,700 in April. This would mean the price cap is more than four times higher than before the gas price crisis started last year. However, the consultants pointed out that forecasts so far ahead were less likely to be reliable.

Auxilione said the changes were largely due to new Ofgem rules announced earlier this week.

On Thursday, the energy regulator Ofgem confirmed changes to its price cap methodology that meant the cap would be altered every three months instead of every six.

The wholesale energy market is moving so rapidly that suppliers are struggling to buy energy, creating a market structure known as “backwardation”, when future prices are cheaper than today's.

Ofgem factors in an allowance so suppliers can recoup the costs of backwardation, however today’s prices are so high it is feared many suppliers could go under before they have the chance.

To prevent a repeat of last year’s crisis when a wave of energy firms collapsed, Ofgem is halving the timeframe for suppliers to recover the costs of delivering energy. But as Auxilione’s figures suggested, this could mean the consumer ends up paying more.

Tony Jordan, of Auxilione, said: "Market volatility is seriously hurting suppliers, so the regulator is trying to prevent more firms collapsing – but unfortunately the consequence is the consumer bears the cost."

It is possible energy bills will not fall until July, Auxilione said, when the price cap could dip to £4,000. However, this is still double the current level.

Auxilione said it was re-running its figures due to the changes Ofgem made to its price cap methodology. It added: "Over the last 24 hours we have been comparing our values with other analysts who also seem to be in the same position as us – in disbelief at the values."

An Ofgem spokesman said: "The wholesale market continues to move extremely quickly so no forecast for next year is at all robust at this stage, and will therefore have very limited value, especially for consumers who must always be the main priority.

“We cannot stop others from making predictions but we would ask that extreme caution is applied to any predictions for the price cap in January or beyond.”