Energy bills set to rise by 20% despite expected fall in price cap

Bills will rise by an estimated £500 a year despite an expected reduction in Ofgem's household energy cap, analysts expect.

The energy regulator will cap the amount households pay on electricity and gas bills each year at £3,294 from 1 April, Cornwall Insights has forecast - a drop from the previous cap of £4,279 effective from the beginning January to the end of March.

But customers will pay about 20% more on their bills - approximately £500 - as the government's energy price guarantee only partially protects consumers from paying the full price cap.

Under the energy price guarantee, household energy bills will be limited to £3,000 a year from 1 April, an increase of £500 from the current guarantee rate of £2,500.

At present, the government pays the difference between energy bills accrued by households and the amount consumers pay.

When the upcoming end of the £400 energy rebate scheme is factored in the energy cost for households will increase even more, Dr Craig Lowrey, the principal consultant at Cornwall Insight, said.

"Regrettably the forecast for April looks set to leave the price cap above the increased energy price guarantee level," Dr Lowrey said.

"While tumbling cap projections are a positive, unfortunately, already stretched households will be seeing little benefit before July."

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Under the energy rebate scheme, six installments of about £66 were paid monthly to bill payers from October.

It may not be all bad news as market competition could increase.

"While prices under the cap remain considerably higher than historic norms, the combination of falling wholesale prices and an increase in the energy price guarantee could see the return of competitive tariffs, and with it the chance for consumers to take back some control over their energy bills," Dr Lowrey said.

As a result of the reduced cap and the high energy price guarantee, the amount of money paid by the government will fall. Cornwall Insights have predicted the government will save about £2.6bn as a result.

That spending on the energy price gap, however, will effectively be zero from July until the end of 2023 as Ofgem's energy price cap is expected to fall below the government's energy price guarantee, according to Cornwall Insights.

Ofgem announces new price caps four times a year and the July and October caps are forecast to be below £3,000. Such caps would mean there is no price difference in the amounts charged by energy companies and the amount customers pay.

From July to September the cap will be £2,153, Cornwall Insights expects, rising in the final three months of the year to £2,161, all sums below the current £3,000 energy price guarantee.

Cornwall Insights became a prominent voice in predicting levels for the energy price guarantee's predecessor, the energy price cap.