Millions of households are set to face higher energy bills this winter as Ofgem has revealed an increase in its price cap. The new cap will see a 2% rise starting in October, meaning an increase from £100 to £102 for every £100 spent on gas and electricity. This hike exceeds earlier predictions of a 1% increment.
According to Ofgem, the average dual fuel household paying through direct debit will witness their annual energy bill climb from £1,720 to £1,755. For those on pre-payment meters, the cap will increase from £1,672 to £1,707 annually, while those paying upon receipt of the bill will see their yearly charge go up from £1,855 to £1,890.
Despite the price cap, there is no ceiling on overall energy expenses. The cap specifically limits the charges for gas and electricity unit rates alongside standing charges. Standing charges, which are fixed daily fees for network connection, are applicable regardless of energy consumption. The price cap is revised every three months in January, April, July, and October.
The new price cap, effective from October 1 until December 31, will be subject to further updates by Ofgem. The unexpected increase is attributed to alterations in network costs and the expansion of the Warm Home Discount scheme, offering eligible households £150 off their winter energy bills.
Director General, Markets at Ofgem, Tim Jarvis, highlighted the progress in the market dynamics but acknowledged the impact on consumers. He advised exploring fixed tariffs for potential savings and encouraged payment methods like direct debit or smart pay as you go for financial benefits. Jarvis emphasized the necessity to diversify the energy mix to mitigate reliance on volatile international gas markets.
Minister for Energy, Michael Shanks, expressed concerns over the rise in prices due to increased wholesale gas costs post the Russia-Ukraine conflict. He reiterated the government’s commitment to transitioning towards sustainable energy sources to stabilize bills and support vulnerable households.
The Ofgem price cap regulates maximum charges for gas and electricity unit rates and standing charges. It reflects an average billpayer’s annual expenditure, considering typical energy consumption levels. Regional variances in unit rates and payment methods can influence individual bills. The price cap is updated quarterly to align with fluctuating wholesale energy prices.
For instance, the average unit rate for electricity is increasing from 25.73p per kWh to 26.35p per kWh, with the daily standing charge rising from 51.37p to 53.68p. In contrast, the unit rate for gas is decreasing from 6.33p per kWh to 6.29p per kWh, while the standing charge is set to rise from 29.82p to 34.03p per day.
Approximately 34 million customers in England, Wales, and Scotland fall under the price cap, including direct debit, prepayment, and bill payment customers. Shopping around for fixed tariffs can potentially yield savings exceeding £200 compared to the forthcoming price cap level. Wholesale energy costs significantly impact the price cap, with other factors such as infrastructure maintenance, operational expenses, and supplier profits also considered.
Cornwall Insight predicts a potential drop in the January price cap to £1,712 for direct debit households, subject to various external factors. Ofgem is expected to announce the next price cap by November 27, 2025, with ongoing assessments to ensure market stability and consumer protection.
