MILLIONS of households will see their energy bills rise by £94 a year from today.
From what the energy price cap is to how it works – here’s everything you need to know.
1
What is the energy price cap?
The price cap on energy bills was introduced on January 1, 2019, by regulator Ofgem.
The introduction of the price cap was aimed at preventing the millions of households on expensive tariffs, from being ripped off.
The energy regulator will increase the price cap from £1,834, the lowest figure since March 2022, to £1,928 a year from today (January 1).
This equates to a rise of roughly 5% , or an extra £7.83 a month, for a typical home.
The £1,928 figure is calculated based on what Ofgem thinks an average household will use.
This is calculated assuming that a typical household uses 2,700 kWh of electricity and 11,500 kWh of gas over a 12-month period.
The rise in Ofgem’s price cap will mean a typical household will see their bills hiked by £94 a year.
The price of electricity has risen from 27.35p per kWh to 28.62p per kWh.
The unit rate for gas has risen from 6.89p per kWh to 7.42p per kWh.
Those who use less will pay less, and those who use more will pay more.
Around 4.3million households on prepayment meters will continue to receive a government-backed discount to ensure that they aren’t charged more than those who pay by direct debit.
The price cap is adjusted every three months to reflect changes in underlying costs, as well as inflation, and only impacts UK households on default or variable tariffs.
This still accounts for roughly 29 million customers, according to Ofgem.
The dates when the levels will be announced next are as follows according to the regulator.
- April 1 to June 30 level, announced by February 23 2024
- July 1 to September 30 level, announced by May 28 2024
- October 1 to December 31 level, announced by August 27 2024
Do note Ofgem has also given itself the power to change the cap at points during ”exceptional circumstances”.
The cap is predicted to fall again in April 2024, however, there’s no guarantee on what might happen, as wholesale energy prices are affected by many things, and could still go up or down depending on world events.
If you are on a fixed-term deal the price cap doesn’t apply to you.
The cap is calculated based on the wholesale price of gas and electricity.
It also includes allowances for tax, charges paid to the energy networks, green levies and social payments.
The UK imports more than two-thirds of its gas which is subject to global price swings, making prices more volatile and likely to rise.
How does the energy price cap work?
The energy price cap works by setting a limit on the maximum amount suppliers can charge for each unit of gas and electricity.
It ensures that prices for people on default energy tariffs are fair, and that they reflect the cost of energy.
That means despite the energy price cap being £1,928, you might pay more or less than this amount, depending on your usage.
The way you pay for your energy, where you live, your meter type, and your consumption will all affect your energy bill.
Ofgem also sets a maximum daily standing charge which is what households have to pay in order to have their home connected to the National Grid.
When it was first introduced, the cap was set to remain in place until at least the end of 2020, although the Government has announced its intention to allow the price cap to be extended beyond 2024 if required.
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