Millions of households will face increased energy bills this winter following Ofgem’s announcement of a new price cap. The cap is set to rise by 2% starting in October, resulting in a hike where every £100 spent on gas and electricity will now amount to £102. This adjustment surpasses initial expectations, as most analysts had predicted only a 1% increase.
For the average dual fuel household paying via direct debit, Ofgem foresees an annual energy bill escalation from £1,720 to £1,755. Similarly, individuals using pre-payment meters will witness a rise from £1,672 to £1,707 annually, while those paying upon receipt of their bill will see an increase from £1,855 to £1,890.
It’s important to note that while there is a cap on unit rates of gas and electricity, as well as standing charges, there is no ceiling on the total energy bill you could incur. Standing charges are fixed daily fees for network connection, applicable regardless of energy consumption. The price cap undergoes adjustments every three months, in January, April, July, and October.
Effective from October 1 and scheduled to remain until December 31, the new price cap reflects a larger-than-anticipated surge due to shifts in network expenses and the expansion of the Warm Home Discount scheme, offering eligible households a £150 reduction on their winter energy bills.
Director General, Markets at Ofgem, Tim Jarvis, highlighted the evolving energy market landscape with more consumers opting for fixed tariffs, increased switching options, enhanced customer satisfaction, and reduced complaints. Ofgem advises exploring fixed tariffs to potentially save over £200 compared to the new cap. Additionally, opting for direct debit or smart pay-as-you-go methods can lead to cost savings. Efforts are ongoing to diversify the energy mix to mitigate the impact of fluctuating global gas prices.
Minister for Energy, Michael Shanks, emphasized the government’s commitment to transitioning away from fossil fuels towards sustainable, domestically controlled energy sources to stabilize prices. Measures are being taken to support vulnerable households during the winter, including expanding the Warm Home Discount and fortifying customer protections within the energy sector.
The price cap imposed by Ofgem determines the maximum charges for gas and electricity unit rates along with standing charges, influencing the total bill amount. The average electricity unit rate is set to increase from 25.73p to 26.35p per kilowatt-hour, while the gas unit rate will decrease from 6.33p to 6.29p per kilowatt-hour. Standing charges for both electricity and gas are also subject to adjustments.
The price cap applies to standard variable rate (SVR) energy tariffs for consumers not currently under a fixed deal. Approximately 34 million individuals across England, Wales, and Scotland fall under the price cap coverage, comprising direct debit, prepayment, and bill payment customers. Shopping around for fixed tariffs could potentially yield savings exceeding £200 compared to the upcoming price cap level.
Wholesale energy costs, network maintenance expenses, operational costs, and other factors contribute to determining the price cap. Ofgem’s next price cap announcement is scheduled for January, with forecasts suggesting a potential decrease. However, these projections are subject to various geopolitical, weather-related, and policy cost factors.