Energy regulator Ofgem is to blame for part of a massive increase in energy bills, experts said, as they forecast that the price cap will hit more than £4,200 in January.
In a new dire outlook for households, Cornwall Insight said bills are set to soar to around £3,582 in October, from £1,971 today, before rising even further in the new year.
Ofgem is set to put the price cap at £4,266 for the average household in the three months from the beginning of January.
The energy consultancy said this is around £650 more than its previous forecast.
It comes after Ofgem last week announced changes to the way in which it calculates the price cap on energy bills.
Craig Lowrey, principal consultant at Cornwall Insight, said: “While our price cap forecasts have been steadily rising since the summer 2022 cap was set in April, an increase of over £650 in the January predictions comes as a fresh shock.
“The cost-of-living crisis was already top of the news agenda as more and more people face fuel poverty – this will only compound the concerns.
“Many may consider the changes made by Ofgem to the hedging formula, which have contributed to the predicted increase in bills, to be unwise at a time when so many people are already struggling.”
However, he also defended Ofgem’s decision, which will hopefully lead to lower bills in the second half of next year.
This will happen because Ofgem is making it easier for energy suppliers to recover their costs. By doing this, fewer suppliers will fail – and the cost of those failures will not need to be passed on to customers.
“With many energy suppliers under financial pressure, and some currently making a loss, maintaining the current timeframe for suppliers to recover their hedging costs could risk a repeat of the sizeable exodus seen in 2021,” Dr Lowrey said.
“Given that the costs of supplier failure are ultimately met by consumers through their energy bills, a change which means that this is less likely is welcome, even if the timing of it may well not be.”
Part of the increase in the forecast is also due to rising wholesale energy prices, Cornwall said.
The price cap forecasts from Cornwall show bills reaching £4,427 in April, before finally dropping slightly to £3,810 from July and £3,781 from October next year.
Dr Lowrey said the Government must take action to step in and protect households from the runaway costs.
The Government has already promised £400 to every household, and extra help for the more vulnerable.
“If the £400 was not enough to make a dent in the impact of our previous forecast, it most certainly is not enough now,” Dr Lowrey said.
His comments were echoed by Money Saving Expert’s Martin Lewis, who said in a thread on Twitter that the change “will leave many destitute”.
He said recent promises from Conservative leadership candidates to cut green levies will not be enough.
“The leadership debate must not ignore this portentous national cataclysm any more,” Mr Lewis said.
“They are all in the same party; let’s call on them to come together for the good of the nation rather than personal point-scoring.”
Dr Lowrey said the current price cap is not controlling consumer prices and is damaging suppliers’ business models, and questioned whether it is fit for purpose.
“The Government must make introducing more support over the first two quarters of 2023 a number one priority,” he said.
“In the longer term, a social tariff or other support mechanism to target support at the most vulnerable in society are options that we at Cornwall Insight have proposed previously.
“Right now, the current price cap is not working for consumers, suppliers, or the economy.”
Ofgem said: “The wholesale market continues to move extremely quickly so no forecast for next year is at all robust at this stage and will therefore have very limited value, especially for consumers who must always be the main priority.
“We cannot stop others from making predictions but we would ask that extreme caution is applied to any predictions for the price cap in January or beyond.”
Morgan Wild, head of policy for Citizens Advice, said: “The cost-of-living crisis is already having a devastating impact on people’s lives.
“Every day we hear from people who can’t afford to turn the lights on or cook their kids a hot meal.
“The Government did the right thing by bringing in targeted support, but it won’t be enough for people to manage these previously unthinkable price hikes.
“The obvious place to start is to increase benefits to keep pace with the cost of living. There’s no time to waste.”