The energy price cap will increase to £3,549 per year for an average household from 1 October 2022, Ofgem has announced.
This is a rise of 80 per cent on the current level and analysts at Cornwall Insight predict the cap could increase to £5,300 from next April, spelling even bigger financial pain potentially down the line.
The boss of the energy regulator warned of hardships this winter as the cap goes up from £1,971 – an increase of 177 per cent since October 2021.
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Ofgem confirmed they were increasing their price cap to £3,550 to help cover the continuing rising cost of wholesale gas – over 24m households are expected to be impacted
Direct debit energy customers will see their yearly bills increase by 80 per cent, with prepay customers bills hiked by 79 per cent, from £2,017 to £3,608.
Electricity unit rates are rising from 28.3p, to 51.8p per kWh, while gas doubles from 7.4p to 14.8p.
Standing charges are also increasing by 1p for electricity to 46.3p per day, and 1.2p for gas, meaning homes are paying around £270 per year before they even use any power.
What is the energy price cap?
Ofgem’s price cap is the maximum amount households can be charged for a unit of energy: the kilowatt hour or kWh on your bills, which means families could still be paying more than the £3,549 per year cap from October.
The cap also limits the standing charge, or what energy firms charge customers for being connected to the grid.
The price cap protects against the so called ‘loyalty premium’ where customers who do not move suppliers or switch to better deals can end up paying far more than others.
A cost breakdown for Ofgem’s energy price cap which is set to rise on October 1 that shows the price of wholesale gas more than doubling from the previous April price cap review
Ultimately, the price cap cannot be set below the true cost of buying and supplying energy to our homes and so the rising costs of energy are reflected in it.
Ofgem sets the energy price cap every three months and it applies in England, Scotland and Wales.
The new cap is expected affect 24million households in the UK, around 85 per cent of the population.
Why are energy prices so high?
Energy prices rose rapidly around the world after pandemic lockdowns were lifted and global economies returned to normal.
Many industries, places of work and leisure facilities were then in need of more energy which put unprecedented pressures on suppliers.
Russia’s invasion of Ukraine in February then led to cuts in gas supplies to Europe, which in turn sent European natural gas prices soaring.
At the start of 2021, UK gas was at 38p per therm. This month it has gone as high as 537p per therm.
Russia had previously supplied 40 per cent of the gas used in the EU, and as Europe scrambled to find alternative sources for their energy, prices began to rise.
Due to the steep rise in prices, dozens of large energy firms went bust in 2021, including Bulb, leaving 1.4 million customers without a supplier.
How much will my bills increase by?
The new price cap means that households will be paying around 80 per cent more for their energy from October, assuming they are not on a fixed contract.
The price cap shows that the average household is now expected to be paying £3,549 a year on their energy bills, working out to £300 per month.
To work out what your energy bill could look like from 1October, simply take your yearly estimate and multiply this figure by 1.8.
|April 2022: £1,971
|October 2022: £3,549
|Predicted January 2023: £4,266
|Source: This is Money, based on Cornwall Insight energy price cap forecasts 9/8/2022
There is some support available if you are concerned with your energy bills heading into Winter.
First, you should contact your energy provider to discuss your options, and if you are worried about mounting debt, then you should get in touch with Citizens Advice, the National Debtline, or StepChange for support.
Guide > What other energy bill support is available?
Some grants are available to low-income households to support their bills.
The Warm Home Discount Scheme gives low-income households a £150 discount on bills, while The Winter Fuel Payment helps older people meet their energy bills every year and is worth between £250 and £600 per person each year.
Forecasts predicted the price cap would rise to £3,570, as new estimates suggest this could soar higher in Spring next year, as regulators and charities urge government to intervene
How much have the big oil companies made this year?
Energy companies have made soaring profits this year, despite the rising cost of fuel and severe impact on UK households.
Shell made £7.2billion in profit in the first three months of 2022, almost three times what it made in the same period last year, while Exxon raked in £7.4billion.
Chevron upped its profits to £5.5billion and BP reveled in its highest first-quarter profits in a decade, making £5.2billion.
However, while big oil companies record soaring profits, energy suppliers are reportedly struggling to make a profit with the steep rises in gas prices.
Ofgem emphasised in its announcement that the cap sets a strict and modest profit rate that suppliers can make from domestic energy sales.
It added that unlike energy producers and extractors, most domestic suppliers are currently not making a profit.
For example, British Gas owner Centrica revealed operating profits for the six months ending in June were up to £1.34billion from £262million a year earlier.
However, it said profits came from its nuclear and oil and gas operations, rather than its British Gas energy supply business which performed worse than a year before.
What is being done to help households struggling with their energy bills?
Calls from Scottish Power, among other large energy suppliers in the UK, have been urging the Government to take more action for months – since the April price cap rose by 54 per cent.
Scottish Power boss proposed a £100billion tariff deficit fund to help cover rising costs and freeze energy prices for two years for struggling customers.
While he said the proposal was being considered by ministers, the conservative leadership candidate, Rishi Sunak, said the proposal would not solve problems in the long term.
Households across the UK are also due to receive their £400 energy bill loan, which will see a £66 reduction in bills from October to March to help with the rising costs.
There is becoming increased urgency being direct to the incoming Prime Minister and new cabinet to provide an additional and urgent response to continued surging energy prices from many experts.
Jonathan Brearley, chief executive of Ofgem, 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.
‘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.
‘We are working with ministers, consumer groups and industry on a set of options for the incoming Prime Minister that will require urgent action. The response will need to match the scale of the crisis we have before us.
‘With the right support in place and with regulator, government, industry and consumers working together, we can find a way through this.’
Will the energy crisis get worse?
Future predictions for the energy price cap remain bleak.
Ofgem also added in its announcement that while it was not able to provide price cap projects for January due to the currently volatile market, it warned that winter prices could get significantly worse through 2023.
This worrying news comes after Citizens Advice reported a staggering increase in the number of concerned bill-payers struggling to pay for their energy bills after the April price cap increase.
The charity said it has been a record breaking year for referrals for crisis support, as more than 134,000 bill-payers have reached out to the service for energy bill support since the start of the year
Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said millions are facing a no win scenario, and called on the government to provide more support for vulnerable households.
She said: ‘Millions of households are facing a no-win scenario – and as the price cap continues to rise, the need for further support is becoming ever more urgent.
‘The Government needs to come up with solutions for the many people for whom this situation is simply unaffordable.
‘This could include significantly raising benefits and introducing direct additional support to households on the lowest incomes.
‘Ofgem also needs to do more to protect households by ensuring suppliers treat people who are struggling or already in energy arrears fairly and halting potentially harmful debt collection practices.
‘This energy crisis is proving catastrophic for small businesses too. The Government needs to explore every option available to help small businesses cope with soaring energy costs – or risk many thousands failing to get through the winter.
‘Anyone worried about their finances should contact a free debt advice service, like National Debtline or Business Debtline.’