Energy bills are set to increase for numerous households this winter as Ofgem has revealed a new price cap adjustment. The price cap is slated to rise by 2% starting this October, meaning that for every £100 spent on gas and electricity, the bill will climb to £102. This increase surpasses expectations, as most analysts had forecasted a 1% uptick in the price cap.
According to Ofgem, the average dual fuel household paying via direct debit can anticipate their yearly energy bill to escalate from £1,720 to £1,755. For individuals using a pre-payment meter, the price cap is rising from £1,672 annually to £1,707, while those paying upon receipt of the bill will see an increase from £1,855 per year to £1,890.
Despite the price cap adjustments, there is no set limit on the total amount consumers can pay for energy. Instead, the price cap regulates the maximum charges for gas and electricity unit rates, as well as standing charges. Standing charges are fixed daily fees for maintaining connection to the energy network. The price cap undergoes revisions every three months, in January, April, July, and October.
The latest price cap revision will be effective from October 1 and will remain in place until December 31, after which Ofgem will update it once more. Ofgem attributed the larger-than-anticipated increase to alterations in network costs and the expansion of the Warm Home Discount scheme, providing eligible households with a £150 reduction on their winter energy bills.
Tim Jarvis, Director General of Markets at Ofgem, emphasized the ongoing efforts to enhance market conditions, citing an increase in customer satisfaction and a reduction in complaints. Jarvis recommended exploring fixed tariffs to potentially save over £200 compared to the new price cap. Emphasizing the need for a diversified energy mix to reduce dependency on volatile international markets, Jarvis highlighted the collaborative efforts with the government and the sector to achieve this goal.
Michael Shanks, Minister for Energy, acknowledged the concerns regarding price rises and attributed them to the substantial surge in wholesale gas prices following geopolitical events. Shanks reiterated the government’s commitment to transitioning to cleaner, domestically-controlled energy sources to stabilize bills. He also mentioned initiatives to support vulnerable households during the winter, such as expanding the Warm Home Discount and enhancing customer protections within the energy system.
The Ofgem price cap dictates the maximum allowable charges for gas and electricity unit rates, along with standing charges, though actual bills may vary. The main price cap figure signifies the expected annual energy bill for an average consumer using specified amounts of electricity and gas. Regional variations in unit rates and different rates for prepayment and bill-paying customers can impact individual bills.
Moreover, the price cap is reviewed every three months to align with fluctuating wholesale energy prices. The average unit rate for electricity is increasing, while the unit rate for gas is decreasing, with corresponding adjustments to standing charges. Consumers on standard variable rate (SVR) energy tariffs are covered by the price cap unless they have secured a fixed energy deal.
Approximately 34 million residents in England, Wales, and Scotland fall under the price cap, with the majority on direct debit, prepayment, or bill payment arrangements. Shopping around for fixed energy tariffs could lead to significant savings compared to the price cap level. Wholesale energy costs, network maintenance, operating expenses, and other factors are considered in determining the price cap, with future adjustments anticipated.
Cornwall Insight projects a potential decrease in the energy price cap for January, subject to various factors. Readers can subscribe to the Mirror Money newsletter for money-saving tips and exclusive offers delivered directly to their inbox.
