Energy price cap to increase by £693 from April

The energy price cap will increase by around £700 from 1 April for approximately 22 million customers.

Those on default tariffs paying for direct debit will see an increase of £693 from £1,277 to £1,971 per year (difference due to rounding). Prepayment customers will see an increase of £708 from £1,309 to £2,017. 

The increase is driven by a record rise in global gas prices over the last six months, with wholesale prices quadrupling in the last year.

It will affect default tariff customers who haven’t switched to a fixed deal and those who remain with their new supplier after their previous supplier exited the market.

The price cap is updated twice a year and tracks wholesale energy and other costs.

It stops energy companies from making excessive profits, ensuring customers pay no more than a fair price for their energy.

The price cap allows energy companies to pass on all reasonable costs to customers, including increases in the cost of buying gas.

Since the price cap was last updated in August, the current level does not reflect the unprecedented record rise in gas prices which has since taken place.

Under the price cap mechanism, energy companies will be allowed to pass on these higher costs from April when the new level takes effect.

This is because energy companies cannot afford to supply electricity and gas to their customers for less than they have paid for it.

Over the last year, 29 energy companies have exited the market or been put in special administration in the wake of soaring global gas prices, affecting around 4.3 million domestic customers.

Jonathan Brearley, chief executive of Ofgem, said: “We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.

“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.

“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”

Ofgem will tomorrow announce further measures to help the energy market weather future volatility by increasing financial resilience and have the flexibility to respond so that risks are not inappropriately passed on to consumers. This follows measures announced in December.

The further measures include enabling Ofgem to update the price cap more frequently than once every 6 months in exceptional circumstances to ensure that it still reflects the true cost of supplying energy.

As a result of this increase, the government has pledged support to help households with rising energy costs.

Households in England, which are in council tax bands A-D, will receive a £150 rebate which will not need to be repaid, whilst the Energy Bills Rebate will provide around 28 million households with an upfront discount on their bills worth £200 – which will later be paid back.
 

Read more: Govt pledges support to help households with soaring energy costsPublished: 03 February 2022