- Cornwall Insight expects the typical dual-fuel cap to rise 4% to £1,729 from October.
- The increase would more than offset the government’s £44 electricity VAT saving.
- Conflict, constrained LNG supplies and low European storage have pushed winter wholesale prices to their highest level in almost four years.
Household energy bills are forecast to reach their highest level in three years this winter as renewed wholesale gas volatility overwhelms the government’s attempt to cut electricity costs.
Cornwall Insight expects Ofgem’s Default Tariff Cap to rise from £1,663 to £1,729 for a typical dual-fuel household paying by direct debit from October, an increase of £66 or 4%.
On the previous higher consumption benchmark, the equivalent cap would increase from £1,862 to £1,941. Cornwall said the underlying unit costs would be the highest since July 2023.
The figures remain a forecast, with Ofgem due to confirm the cap on 26 August. The cap limits unit rates and standing charges rather than total expenditure, meaning households that consume more energy will pay more than the headline amount.
Cornwall’s central estimate puts electricity expenditure at £866.63 and gas at £862.68 under the new typical consumption definition. It forecasts average unit rates of 26.57p/kWh for electricity and 7.90p/kWh for gas.
The forecast incorporates the government’s decision to remove the 5% VAT charge from household electricity bills in October, which Cornwall previously estimated would save a typical household around £44 annually. Wholesale movements have since swallowed that reduction and added a further £22.
International volatility bites
Cornwall said forward winter prices had reached their highest level in almost four years, reflecting uncertainty surrounding the US-Iran conflict and disruption to Middle Eastern energy flows.
Problems affecting LNG supplies and shipping have made it harder for European storage operators to rebuild stocks before winter. Competition for cargoes from Asia, extended Norwegian production outages and gas-fired generation during Europe’s heatwaves have added to the pressure.
“Driven by international conflict rather than domestic policy, it is a stark reminder that our energy bills remain tied to events thousands of miles away,” said Cornwall Insight principal consultant Craig Lowrey.
The organisation’s preliminary January forecast indicates another increase, although Lowrey cautioned that extreme wholesale volatility meant the estimate would change before Ofgem makes its November announcement.
The Energy and Climate Intelligence Unit said the forecast risked reminding households of the price shock that followed Russia’s invasion of Ukraine. Its head of energy, Jess Ralston, argued that the UK’s reliance on gas for home heating remained a particular vulnerability.
The development also creates an awkward policy contrast. On the same day that the forecast showed imported gas costs erasing a tax reduction, Conservative-backed analysis proposed retaining more gas-fired generation as a way to lower long-term electricity system costs.
Neither observation resolves the argument by itself. Renewable generation requires networks, flexibility and balancing investment, while increasing gas exposure leaves consumers vulnerable to commodity shocks over which the UK has little control. Domestic production can support security and the balance of payments, but UK gas prices remain connected to the wider European market.
The immediate policy question is whether the government provides further targeted support this winter. The longer-term challenge is harder: reducing exposure to gas without loading transition costs disproportionately onto consumers who are already struggling with bills and accumulated energy debt.
