Switching between energy suppliers is expected to return later this year after a two-year pause due to lack of competition amid high bills.
The energy consultancy Cornwall Insight said on Monday that easing costs later this year would present consumers with the chance to “take back some control” over their bills, as suppliers compete for customers again.
Switching between suppliers had become increasingly common over the last decade as the regulator Ofgem attempted to improve competition in the sector. However, the sharp rise in gas prices in 2021 sent 29 suppliers bust and left the remaining companies offering customers fixed deals at or just below the price cap.
Some of the UK’s largest suppliers were paid to take on hundreds of thousands of customers through the supplier of last resort process, while Octopus Energy acquired the bailed-out supplier Bulb’s 1.5 million customers in a deal with the government.
Cornwall Insight said an easing in prices could embolden suppliers to compete more actively for customers.
The energy crisis, which began in 2021 and was exacerbated by the invasion of Ukraine, has sent bills soaring as wholesale gas prices have risen sharply. However, in recent days gas prices have eased to 18-month lows, and it is hoped that bills will come down later this year.
Cornwall Insight predicted on Monday that the Ofgem energy price cap would hit £3,294 from April, and then stay at about £2,150 from July until the end of the year.
Bills are still expected to rise in the short-term, as the government energy price guarantee, aimed at limiting average annual costs to £2,500, rises to £3,000 from April. A £400 one-off rebate will also not be replicated, leaving households worse off.
Dr Craig Lowrey, the principal consultant at the consultancy, said: “While prices under the [Ofgem] cap remain considerably higher than historic norms, the combination of falling wholesale prices and an increase in the energy price guarantee could see the return of competitive tariffs, and with it the chance for consumers to take back some control over their energy bills.
“Of course, all of these outcomes remain subject to wholesale energy market volatility – the potential for which cannot be discounted while the current energy crisis is still ongoing.”
Martin Young, an analyst at Investec, said it was “plausible” that suppliers would begin offering fixed-price deals below the £3,000 government guarantee – which is in place until next April – “although the level of exit fees will be important in assessing attractiveness”.
The government has faced pressure to fix the guarantee at £2,500 rather than raising it from April. Cornwall Insight estimated that ignoring those calls would save the government £2.6bn. It predicts the estimated cost will be £26.8bn, while if it were to remain at £2,500, the cost would be £29.4bn, far lower than previous estimates owing to the fall in wholesale gas prices.
