British households face a sharp increase in energy costs this summer, with bills forecast to rise by more than £200 a year as the Middle East conflict hits the domestic market.
The energy analyst Cornwall Insight has released its final forecast for the July to September price cap, predicting that the annual bill for a typical dual-fuel household will climb to £1,850. This represents a 13 per cent increase from the current cap of £1,641.
The increase is attributed to a volatile wholesale market since the Iran war started on February 28. The report said prices climbed sharply in February and March after United States and Israeli strikes on Iran triggered retaliatory attacks. It led to the closure of the Strait of Hormuz, through which around a fifth of the world’s oil and gas previously passed, pushing up global oil and gas prices.
While energy consumption typically fell during the warmer months, experts warned that the elevated cap was likely to persist into the high-demand winter period.
Cornwall said: “The bigger concern is October, when demand picks up again.”
The report cautioned that even an end to hostilities would be unlikely to lead to a price drop because of significant “physical damage to infrastructure” and long-term supply disruption.
Since the start of the conflict, Cornwall’s forecasts have shifted as the geopolitical situation has evolved. On March 20, it estimated the cap would rise by £332 to £1,973 a year. After a fragile ceasefire, the forecast for the cap on May 13 dipped to £1,929 a year, a net increase of £288.
The official July price cap announcement from the energy regulator, Ofgem, is expected this month.
Ofgem is consulting on changing the definition of a “typical” household’s energy use due to a general decline in national energy consumption. The regulator is considering lowering the “typical domestic consumption values” used to calculate headline figures. The energy regulator said it was minded to adopt these lower numbers for inclusion in its cap methodology from July at the earliest.
Cornwall Insight said that if Ofgem adopted the lower consumption figures, the headline “average bill” would appear to rise by less. However, it cautioned that as the cap controlled unit rates and standing charges rather than the total bill itself, what households actually paid would depend on how much energy they used and would not be affected by Ofgem’s “average bill” figure.