Energy Price Cap to Change Every Three Months From October
The price cap that states how much energy suppliers in the UK can charge households will change every three months from October, instead of every six months. This has been confirmed by the UK’s energy regulator Ofgem.
This more frequent change in price caps means that it is likely that we will see prices rise by two times this winter due to the current high rate of wholesale energy costs.
From October, the energy price cap will change every January and July, as well as in April and October. According to Ofgem, the frequent changes will provide greater stability for households looking to save money on their bills, as well as reduce the risks of supplier failure. This is because the frequent changes will lower the chances of firms being forced to sell energy at a loss to their consumers if prices do rise rapidly. Ofgem told the Money Saving Expert that supplier failures can “cause high disruption and push up costs for consumers”.
The price cap set by Ofgem limits the maximum amount that energy suppliers are able to charge their customers on standard tariffs for each unit of gas and electricity that they consume. The energy cap further sets a maximum daily standing charge.
At present, the current price caps change twice a year. Typically, this means that there is a summer price cap that runs from the warmer months of April through to September, and a winter price cap which runs through the colder months in the UK from October until March. Instead of twice a year, the new rules mean that the price cap will change every three months.
This announcement comes at a point in time where Cornwall Insight has predicted a 70% hike in energy prices this October, rising to £3,359 a year for the average UK household. They have further predicted an 8% rise in January rising up to £3,616 a year. This rise is due to the increasingly high rates of wholesale energy costs and these are what greatly determine the price caps set.
Ofgem further announced that it will go ahead with plans to reduce the period between when they will announce the price cap and when those changes will hit the bills of UK households. Previously, this gap stood at two months. From October, this will be reduced down to a 25 day gap between the announcement and when the price cap changes will come into effect.
The Chief Executive of Ofgem, Jonathan Brearley told the Money Saving Expert that he knows that “this situation is deeply worrying for many people. As a result of Russia’s actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before. And that means the cost of supplying electricity and gas to homes has increased considerably.
“The trade-offs we need to make on behalf of consumers to save money on their energy bills are extremely difficult and there are simply no easy answers right now. Today’s changes ensure the price cap does its job.”
Ofgem’s announcement to change energy price caps more frequently has been met with contention from many.
The Co-ordinator of the campaign group End Fuel Poverty Coalition, Simon Francis told the BBC that Ofgem’s decision was “simply inhumane”.
He went on to say that “Ultimately, this decision will force more people into fuel poverty in the middle of winter, causing additional stress on the NHS and it may ultimately lead to increased levels of excess winter deaths this year,” he said.
“Only a full programme of emergency financial support, a rapid expansion of energy efficiency programmes and a commitment to bringing more cheap renewable energy on stream will help people stay warm this winter and into the future.”