MILLIONS of households in the UK will see their energy bills rise by £94 a year starting today. This increase is due to the rise in Ofgem's energy price cap. But what exactly is the energy price cap and how does it work? In this article, we will break it down for you.
What is the energy price cap?
The energy price cap was introduced by regulator Ofgem on January 1, 2019. Its main purpose is to prevent households from being overcharged on expensive energy tariffs. The price cap is adjusted every three months to reflect changes in underlying costs and inflation. It only applies to UK households on default or variable tariffs, which accounts for roughly 29 million customers.
How does the energy price cap work?
The energy price cap sets 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 reflect the actual cost of energy. However, the amount you pay may vary depending on factors such as your usage, how you pay for your energy, where you live, your meter type, and your consumption.
Ofgem also sets a maximum daily standing charge, which is the amount households have to pay to have their home connected to the National Grid.
What is the current increase in the price cap?
As of today, the energy price cap has risen from £1,834 to £1,928 per year. This equates to a rise of roughly 5% or an extra £7.83 per month for a typical home. The price of electricity has increased from 27.35p per kWh to 28.62p per kWh, while the unit rate for gas has increased from 6.89p per kWh to 7.42p per kWh.
It's important to note that those who use less energy will pay less, and those who use more will pay more.
What about prepayment meters and fixed-term deals?
Around 4.3 million households on prepayment meters will continue to receive a government-backed discount to ensure they aren't charged more than those who pay by direct debit. If you are on a fixed-term energy deal, the price cap does not apply to you.
What's next for the energy price cap?
The energy price cap is adjusted every three months, and the next announcements for the cap levels will be made on the following dates: February 23, 2024 (for April 1 to June 30 level), May 28, 2024 (for July 1 to September 30 level), and August 27, 2024 (for October 1 to December 31 level). Ofgem also has the power to change the cap during "exceptional circumstances". It's predicted that the cap may fall again in April 2024, but there are no guarantees as wholesale energy prices are influenced by various factors.
In conclusion, the energy price cap is designed to protect consumers from being overcharged for their energy. While it sets a limit on the maximum amount suppliers can charge, the actual amount you pay may vary depending on your usage and other factors. It's important to stay informed about any changes in the energy price cap to understand how it may impact your household bills.
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