Energy bills are set to increase for many households this winter following an announcement by Ofgem regarding a new price cap. The price cap will see a 2% hike starting from October, resulting in a rise from £100 to £102 for every £100 spent on gas and electricity. This increase is higher than the anticipated 1% predicted by analysts.
According to Ofgem, the average dual fuel household paying through direct debit can expect their annual energy bill to climb from £1,720 to £1,755. Additionally, the price cap for individuals using a pre-payment meter will increase from £1,672 to £1,707 annually, while those paying upon receipt of the bill will face a rise from £1,855 to £1,890 per year.
While there is no maximum limit on overall energy costs, the price cap does restrict the charges for gas and electricity unit rates as well as standing charges. Standing charges are fixed daily fees for network connection regardless of energy consumption. The price cap undergoes adjustments every three months in January, April, July, and October.
The new price cap will take effect on October 1 and will be updated by Ofgem on December 31. Ofgem attributes the larger-than-expected increase to alterations in network costs and the expansion of the Warm Home Discount scheme, providing eligible households with a £150 discount on winter energy bills.
Ofgem’s Director General, Markets, Tim Jarvis, noted positive market indicators such as increased customer satisfaction, reduced complaints, and rising fixed tariff adoption. Jarvis advised customers to explore fixed tariffs, direct debit payment, or smart pay-as-you-go options to potentially save money. He highlighted the ongoing need to diversify energy sources to mitigate price fluctuations linked to international gas markets.
Minister for Energy, Michael Shanks, acknowledged concerns over price hikes due to elevated wholesale gas prices following geopolitical events. The government aims to transition to domestic renewable energy sources to stabilize costs and enhance customer protections.
The Ofgem price cap regulates maximum charges for gas and electricity unit rates and standing charges, with actual bills potentially varying from the main price cap figure. Location, payment method, and energy usage influence individual bills, with adjustments made every three months based on market fluctuations.
Unit rates and standing charges for electricity and gas are subject to changes, reflecting the average direct debit bill across England, Scotland, and Wales. Customers on standard variable rate (SVR) tariffs fall under the price cap unless on a fixed deal. Ofgem will announce the January price cap in November, with future adjustments dependent on various factors.
Cornwall Insight forecasts a potential decrease in the January price cap for direct debit households. However, this prediction is subject to geopolitical shifts, weather patterns, policy changes, and market influences. Subscribers can access money-saving tips and offers through the Mirror Money newsletter.
