The fall in average price cap predictions can be directly attributed to Ofgem's adjustment of what it defines as the average household's gas and electricity consumption, known as the Typical Domestic Consumption Values (TDCVs). The values are used to provide consumers with an understanding of the expected energy bill for a typical dual-fuel household.
Following a consultation process, Ofgem has revised the TDCVs, from October it will be reducing them from 2,900 kWh per annum for electricity to 2,700 kWh, and from 12,000 kWh per annum for gas to 11,500 kWh – these new numbers are now reflected in our forecast assumptions.
Ofgem reviews the TDCVs every two years, using data from the previous two years’ average household consumption. However, due to the impact of the pandemic, this review process was temporality halted.
While Ofgem's consumption values are helpful for comparison, it is crucial to understand that a household’s energy bill is based on the energy it consumes, which could be lower or higher than the defined typical household. Forecasts for unit rates and standing charges will not be affected and individual households are not directly impacted by the revision of the TDCV.
Figure 1: Cornwall Insight’s Default Tariff Cap forecasts using new Typical Domestic Consumption Values (dual fuel, direct debit customer)
Source: Cornwall Insight, calculated from market close figures 26/06/2023
Figure 2: Cornwall Insight’s Default Tariff Cap forecasts using old Typical Domestic Consumption Values (dual fuel, direct debit customer)
Source: Cornwall Insight, calculated from market close figures 26/06/2023
Figure 3: Cornwall Insight’s Default Tariff Cap forecasts, Per Unit Cost and Standing Charge including VAT (dual fuel, direct debit customer)
Source: Cornwall Insight, calculated from market close figures 26/06/2023
Dr Craig Lowrey, Principal Consultant at Cornwall Insight:
“The fall in the average price cap predictions reflects Ofgem's efforts to align with the evolving energy consumption patterns of typical households, as consumers respond to high prices, energy efficiency measures, weather conditions and other influences by reducing their energy usage.
“While typical household predictions may provide some insight for consumers, households are still facing the challenge of bills that are well above historic levels. This situation brings us back to the question of the cap’s purpose – as doubts about the cap's effectiveness in protecting consumers and its impact on tariff competition become a regular part of energy discussions.
“In light of this, it becomes crucial to explore alternative measures that can better protect consumers, promote fair competition, and ensure affordable and transparent energy pricing for all. The exploration of options such as social tariffs, energy efficiency initiatives, and various other avenues should be prioritised.
“Any reductions in the price cap should not diminish the sense of urgency in implementing necessary changes. The protection of vulnerable households from high energy bills remains a pressing issue that requires immediate attention."
