UK's household energy price cap could cost $160 bln

A scheme capping gas and electricity prices for UK households for the next two years could cost up to 140 billion pounds ($159 billion) in an extreme scenario, analysts at Cornwall Insights said on Wednesday.

Britain last month announced the price guarantee to help shield consumers from record energy prices amid soaring inflation. read more

Under the programme, which finance minister Kwasi Kwarteng has said would cost around 60 bln pounds over the next six months but whose total cost the government has not estimated, the cost of an average annual household energy bill would be 2,500 pounds.

That compares with an expected bill of more than 3,500 pounds in October and forecasts of much higher bills to come.

Based on their range of forecasts for wholesale energy, the Cornwall Insights analysts said the scheme would cost between 72 and 140 billion pounds overall.

The government will pay energy suppliers the difference between the wholesale price they must pay to buy the energy, and the capped level at which they must sell it to consumers.

“This… leaves government exposed to electricity and gas prices in unpredictable global commodity markets,” the analysts said.

“The need for an exit strategy is therefore crucial, particularly given …the need to ensure it does not extend beyond the two years.”

They said the wide potential cost range highlighted the extent of uncertainty relating to future energy prices, particularly in the scheme’s second year.

Wholesale energy prices have hit record highs this year, following Russia’s invasion of Ukraine, and are expected to remain volatile.