Will the energy price cap rise by another £280 in April next year?

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The next energy price cap, due to come into effect in April next year, could increase by a further £280 – before the £139 hike has even kicked in, a new report has revealed.

Rapidly rising wholesale costs, that has sent the industry into meltdown, mean prices are likely to soar with energy suppliers hoping to cling to survival, according to analysis by comparison website, the Energy Shop.

It comes at a time where four providers collapsed last week with near a million consumers moved to a new supplier. 

Over the past five weeks, since the latest energy price cap was announced, the increases in wholesale prices have been ‘staggering’ with the natural gas prices for winter 2021 rising more than fourfold over the past 12 months, according to Intercontinental Exchange.

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Prices have risen by 324 per cent from 14 September 2020 to the same date this year.

Meanwhile, whilst wholesale gas prices for Britain are available, it is difficult to get hold of the same for wholesale electricity prices, according to the Energy Shop, therefore, it has based predictions on power prices in Germany. 

These show an 174 per cent rise in costs from 14 September 2020 to the same time this year.  

Joe Malinowski, founder of the Energy Shop, said: ‘The current energy market has been turned on its head. 

‘It is no longer about optimising your energy spend – it is now a question of protection and survival – literally.

‘If you can find a fixed energy deal anywhere near the level of the 1 October 2021 energy price cap, just take it. 

‘It may not seem a good deal now but when energy price rocket by another £280 next spring you will be glad you did.’

How wholesale prices is impacting consumers 

Wholesale energy price increases will see households encounter even higher bills than experienced over the past year.

This is concerning for many, especially as the after effects of the pandemic continue, with many still in financial difficulty. 

Even more worryingly, experts believe this will lead to the energy price cap increase increasing by £280 – a massive jump from the £139 due to be added at the beginning of next month. 

This is concerning as the 12 per cent hike is the highest the cap has seen since it launched in 2019.  

Malinowski said: ‘The shocker is that the level of wholesale energy prices has increased by twice as much in the last five weeks as it did in the six months prior. 

‘The simple maths implies that, as things stand, the next level of the cap will increase by around £275 to £280.

‘This would take the energy price cap, when it is next reviewed, and increased, on 1 April 2022, to around the £1,555 mark.

‘To put that into context, price protected standard tariffs would be 50 per cent higher than they were two years prior. They would be twice the level that the cheapest tariffs in June of last year.’

WHOLESALE GAS PRICES 

   

Price then Price now (15/9/2021) % change
5-week change (vs 6 Aug 2021) 109.1 183.5 68%
1 year change (vs 14 Sep 2020) 43.3 183.5 324%
Source: UK Natural Gas Futures – Winter21 contract (p/therm)
WHOLESALE ELECTRICITY 

   

Price then Price now % change
5-week change (vs 6 Aug 2021) 92.9 154.7 66%
1 year change (vs 14 Sep 2020) 56.4 154.7 174%
Source: EEX German Power Base Quarter Jan 2022 (Eur/mWh)

This price shock has yet to come, but it will hit consumers in the near future, the Energy Shop warns.


Video: Fears gas price rise could lead to fuel shortages (Sky News)

It said the more immediate impact is felt in the competitive market where energy suppliers use wholesale prices to price and hedge their ‘cheap’ energy tariffs before offering them out for sale.

Here, it claims, the impact has been severe and un-precedented. ‘Cheap’ discounted tariffs have all but disappeared, as have a number of the energy suppliers offering them.

Many of the lowest price tariffs are now well over a thousand pounds when consumers used to have a selection for under £900 last year. 

Research from The Energy Shop shows for many suppliers, the standard tariff – which was typically the expensive rip-off product – is now the cheapest available product, which is a reversal of the normal functioning of the market.

ENERGY SUPPLIER FAILURES 

Date

(ceased trading)

Supplier Number of customers affected New supplier appointed by Ofgem
27-Jan-21 Simplicity Energy 50,000 domestic British Gas Evolve
27-Jan-21 Green Network Energy 360,000 domestic EDF Energy
09-Aug-21 Hub Energy

6,000 domestic

9,000 business

E.ON Next
07-Sep-21 MoneyPlus Energy 9,000 domestic British Gas
07-Sep-21 PFP Energy

80,000 domestic

5,000 business

British Gas
14-Sep-21 People’s Energy 350,000 domestic British Gas 
14-Sep-21 Utility Point 220,000 domestic EDF 

It added some energy suppliers still have fixed deals cheaper than the price capped product. However, the list is small and shrinking very rapidly.  

Instead, many suppliers have hiked their cheapest deals to above the energy price cap and are no longer offering the standard price capped tariffs to new customers.

The Energy Shop says customer choice is collapsing rapidly – and so too are energy suppliers. 

Only last week, Utility Point, People’s Energy, PfP Energy and MoneyPlusEnergy all announced they were ceasing to trade.  

Suppliers are now caught between having cheap fixed price tariffs sold to their customers and rapidly rising input commodity costs.

As such, those who have not fully hedged their input costs find themselves in trouble over the next few weeks. 

ENERGY PRICE CAP LEVELS 

Energy Price Cap Version

From

Pre-open level

To

Price Level

£1,180

Net change
1 01-Jan-19 31-Mar-19 £1,104 £75 cut
2 01-Apr-19 30-Sep-19 £1,254 £113 increase
3 01-Oct-19 31-Mar-20 £1,179 £74 cut
4 01-Apr-20 30-Sep-20 £1,162 £17 cut
5 01-Oct-20 31-Mar-21 £1,042 £84 cut
6 01-Apr-21 30-Sep-21 £1,138 £96 increase
7 01-Oct-21 31-Mar-21 £1,277 £139 increase
Running total (to date) £97 increase

What happens next? 

In a highly uncertain market, there is much uncertainty as to what might happen next. 

However, the Energy Shop said there are three possible ways this can pan out.

1. Wholesale prices can continue to increase – and potentially a lot further

2. Wholesale price can stabilise at these elevated levels

3. Wholesale prices can fall back and/or collapse 

Over the longer-term markets are self-correcting mechanisms, therefore, it expects that today’s extreme price signals will lead to increased energy supply that will, in turn, address the supply and demand imbalance leading to lower prices going forwards.

Certain factors creating the current imbalance including nuclear plant maintenance shutdowns and low wind generation are temporary and will at least partially ease the situation.

However, others, including restricted gas flows from Russia and negligible LNG arrivals in Europe due to Asia demand, are more difficult to call. 

Even if, or when, wholesale energy prices do start to turn downwards, there is still much uncertainty as to how far will they fall and when this will happen.

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The consensus currently emerging is the supply situation will remain tight and precarious over the coming winter leading to high and volatile energy prices. 

Thereafter, supply and demand should be more in balance with prices easing from spring 2022.

In this scenario the Energy Shop said they would expect to see some or all of the following:

1. Energy deals lower than the 1 October 2021 energy price cap will all disappear.

2. The number of energy suppliers still accepting customers onto their price protected standard variable tariffs will dwindle to a small positive integer not far from zero.

3. Some energy suppliers will stop taking on any new customers altogether while they try to stay afloat. 

4. The next level of the energy price cap will see energy prices rocket by close to £300 to around £1,555.

5. More energy suppliers will fail. The question then becomes who will be prepared to step in to take over the energy supply of those customers and at what price?

6. In extreme circumstances, such as a Big Six supplier going bust, Ofgem may be forced to invoke emergency measures to suspend the energy price cap.  

Figures have been recalculated based on the latest average domestic consumption values to make them comparable. These will differ from Ofgem’s reported historic figures as Ofgem has not yet adjusted its data.

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