Households in Britain found out today how much their energy bills will increase by this winter.
Ofgem has confirmed the energy price cap for default tariffs will increase to £3,549 per year for standard use from October until January. Ofgem's CEO, Jonathan Brearly, has warned the jump in energy costs will lead to hardship this winter and called for an "urgent" response from the Government.
Mr Brearley said: “We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make. I talk to customers regularly and I know that today’s news will be very worrying for many.
Read more: Energy bills to soar for millions as Ofgem confirms October price cap
“The price of energy has reached record levels driven by an aggressive economic act by the Russian state. They have slowly and deliberately turned off the gas supplies to Europe causing harm to our households, businesses and wider economy. Ofgem has no choice but to reflect these cost increases in the price cap.
“The Government support package is delivering help right now, but it’s clear the new Prime Minister will need to act further to tackle the impact of the price rises that are coming in October and next year."
The increase does not mean households will pay a maximum of £3,549 for the next 12 months. The new cap applies for three months, the £3,549 per year figure is based on how much customers would pay if that three-month cap figure was in place for the entire year. It is set to rise again in January 2023, then probably again in April 2023 before another change in July 2023.
The regulator said the increase reflected the continued rise in global wholesale gas prices, which began to surge as the world unlocked from the Covid pandemic, and had been driven still higher to record levels by Russia slowly switching off gas supplies to Europe.
What is the energy price cap?
The price cap is the maximum amount suppliers can charge for units of energy to homes. The final figure is based on average use, so homes that use less or more energy may be charged a different amount.
Ofgem says: "The price cap, as set out in law in 2018, reflects what it costs to supply energy to our homes by setting a maximum suppliers can charge per unit of energy, and caps the level of profits an energy supplier can make to 1.9%, protecting millions of households. As a result of the market conditions, the price cap will have to increase to reflect increased costs."
How long is the new £3,549 price cap in place for?
The cap will come into effect for around 24 million households in England, Scotland and Wales on default energy tariffs on October 1. It will remain in place until December 31, when it will be adjusted again.
When will the energy cap rise again?
The cap announced today kicks in on October 1 and will be in place for three months, after which it is very likely to increase again.
The energy cap will change again on January 1, 2023. We will find out how much it will increase by in November 2022. Based on gas prices on Wednesday August 23, 2022, experts at consultancy Auxilione think the cap will reach £5,210 in January 2023.
Money Saving Expert founder Martin Lewis predicted the cap will rise by 51% in January 2022, to £5,386 a year, which is a 173% increase on the April 2022 cap of £1,971.
He added: "This is a strong prediction as we're seven months through the 10-month assessment. Tough to predict after."
Auxilione's latest forecast for April 2023 predicts to rise to the equivalent of £6,823 a year.
Can the energy price cap go down?
Previously, the cap was changed twice a year, now it is four times. In theory, it can go up and down, as it is based on wholesale costs, and it has dropped before, in 2019 and 2020, but has increased since 2021.
Ofgem explains how it works: "While the price cap will have to rise, it continues to remove the risk of prices rising quickly for consumers when wholesale prices go up but falling slowly and less fully when they go down. When wholesale prices fall, these reductions will be passed on in full to customers through a lower price cap. This will happen more quickly with the quarterly price cap."
Read next:
Householders urged to claim £150 grant 'as soon as possible' as deadline looms
The ten household devices racking up your energy bills by £140 a month
Your rights if you choose not to pay energy bills amid cost of living crisis
Homeowner staggered by high energy costs of two appliances even when left on standby
The five most expensive appliances in homes that add hundreds to energy bills
