Millions of households will face higher energy bills this winter following Ofgem’s latest price cap announcement. The price cap is set to increase by 2% starting this October, translating to a rise from £100 to £102 for gas and electricity expenses. This hike surpasses initial predictions of a 1% increment in the price cap.
According to Ofgem, the average dual fuel household paying via direct debit will witness a surge in their annual energy bill from £1,720 to £1,755. The price cap for individuals using a pre-payment meter will also climb from £1,672 to £1,707 annually, while those paying upon bill receipt will see an increase from £1,855 to £1,890 per year.
It is important to note that there is no definitive cap on total energy costs. The price cap specifically regulates the charges for unit rates of gas and electricity, as well as standing charges. Standing charges are fixed daily fees for maintaining network connectivity, irrespective of energy consumption levels. The price cap undergoes adjustments every three months, occurring in January, April, July, and October.
The new price cap will take effect on October 1 and remain in place until December 31, subject to Ofgem’s subsequent updates. Ofgem attributes the larger-than-anticipated rise to alterations in network costs and the extension of the Warm Home Discount scheme, offering eligible households a £150 reduction on winter energy bills.
Tim Jarvis, Ofgem’s Director General of Markets, emphasized the evolving energy landscape, highlighting the increasing adoption of fixed tariffs, heightened consumer switching options, and improvements in customer satisfaction metrics. Jarvis recommended exploring fixed tariffs for potential savings exceeding £200 compared to the new cap. Additionally, paying through direct debit or smart pay-as-you-go mechanisms could result in cost savings.
Michael Shanks, Minister for Energy, acknowledged the concerns surrounding price hikes, attributing the surge to elevated wholesale gas prices following geopolitical events. Shanks outlined the government’s commitment to transitioning towards sustainable energy sources to stabilize energy costs.
Consumers on standard variable rate tariffs fall under the Ofgem price cap unless they are on a fixed energy deal. Approximately 34 million individuals in England, Wales, and Scotland are currently capped, including various payment methods such as direct debit, prepayment, and bill receipt.
Wholesale energy costs significantly influence the price cap, with additional considerations encompassing infrastructure maintenance expenses, network costs, and supplier profits. Ofgem plans to reveal the January price cap by November 27, with forecasts suggesting potential reductions in the upcoming cap level.
Stay informed on money-saving strategies and exclusive offers by subscribing to the Mirror Money newsletter.