The energy price cap will soar to £3,549 a 12 months in October – a rise of 80 per cent.
Energy bills have skyrocketed in 2022. In April the price cap jumped by nearly 60 per cent, from £1,227 to £1,971. The improve introduced at this time means annual energy bills will nearly triple in the house of simply six months.
Around 24 million households general, together with 4.5m properties utilizing prepayment meters, will likely be affected by the hikes.
Here’s what you must know about the price cap, and what it means for your bills.
What is the energy price cap?
The price cap limits the quantity {that a} provider can cost for their default tariff. It was launched in January 2019 by energy regulator Ofgem with the intention of preserving down the price for households throughout the UK.
It contains the standing cost (a hard and fast each day quantity you must pay for energy, no matter how a lot energy you utilize) and the price for every unit of electrical energy and fuel.
To present what this may appear to be for a median individual, Ofgem makes use of a determine of 12,000kWh for a family’s annual energy use.
However, that is only a information to see what the change in price cap does to a typical family’s annual energy invoice. Each family will likely be totally different as everybody will use a distinct quantity of energy.
Several various factors additionally have an effect on how a lot suppliers will cost you for energy underneath the price cap. These embody the place you reside, how you pay for your energy, in addition to the sort of energy meter you have got in your dwelling.
It is at the moment reviewed twice a 12 months to mirror the prices to suppliers of supplying electrical energy and fuel however this may change to each three months as of October.
How is the price cap calculated?
Ofgem bases the price cap on how a lot it could price a typical energy provider to supply energy for a median dwelling.
It makes use of a raft of things which affect upon energy bills in its calculations, in addition to contemplating utilization ranges and market information throughout a given interval.
Key components embody wholesale fuel and electrical energy prices for suppliers, the community prices they should pay – corresponding to infrastructure – and the working prices and revenue margin of suppliers.
Environmental obligations and taxes can be thought of as a part of the price cap figures.
More from Bills
Why are energy prices so excessive?
Energy prices soared all through 2021 on account of a mixture of things. It is a world subject somewhat than one thing solely affecting the UK.
Last 12 months international locations in Asia and Europe used vital quantities of fuel shares throughout a protracted winter, and the elevated demand helped drive up prices, whereas the reopening of economies following the Covid-19 pandemic additionally led to larger energy utilization.
More not too long ago, the battle in Ukraine has led to the price of Russian fuel hovering even additional, which has in flip pushed bills larger.
In the UK, little or no fuel is sourced from Russia, however this has not shielded suppliers from the pricing affect throughout the remainder of Europe, which usually bought round 40 per cent of pure fuel from Russia.
Due to sanctions positioned on Russia Europe is shopping for much less fuel from Russia, however chopping out the Russian provide has pushed up the price of fuel from different sources.
Due to present market circumstances, energy prices are regularly being elevated with the cap anticipated to rise even additional subsequent 12 months.
Will the price cap rise additional?
Fresh forecasts from funding agency Cornwall Insight – which was lower than £5 off when predicting October’s hike – provide a fair bleaker image for 2023.
The cap will hit £5,386.71 in January earlier than leaping to a mammoth £6,616.37 in April, in accordance with its calculations. From August 2023 , it expects the cap to drop barely to £5,897.12 earlier than one other modest fall to £5,887.31 that October.
Announcing the new fee, Ofgem’s CEO warned that prices might get considerably worse all through 2023 and urged the incoming Prime Minister and their new Cabinet to supply an extra and pressing response to “continued surging energy prices”.
When will the price cap change once more?
Here are the dates of all the upcoming energy price cap adjustments, and when Ofgem will announce the new charges:
- 1 October (introduced on 26 August 2022)
- 1 January (introduced on 24 November 2022)
- 1 April (introduced on 27 February 2023)
- 1 July (introduced on 26 May 2023)
- 1 October (introduced on 25 August 2023)
“We know the huge affect this price cap improve could have on households throughout Britain and the troublesome choices customers will now should make,” mentioned Jonathan Brearley.
“The Government help bundle is delivering assist proper now, however it’s clear the new Prime Minister might want to act additional to sort out the affect of the price rises which might be coming in October and subsequent 12 months.”
The End Fuel Poverty Coalition, a marketing campaign group comprising dozens of charities, commerce our bodies and client organisations, mentioned the new fee was “like a dagger to the hearts of hundreds of thousands of individuals up and down the nation”.
Simon Francis, the group’s co-ordinator, mentioned: “As a results of the determination, mother and father will likely be unable to feed their youngsters, the sick and aged will likely be condemned to worsening well being, disabled individuals will go without important medical gear and households will likely be pressured into poverty for the first time in generations.
“All the options lie at the Westminster Government’s door, but it’s silent in the face of this looming catastrophe.
“We want emergency monetary help, particularly for the most in want. But we additionally want reform to Britain’s damaged energy system in addition to elevated help for energy effectivity measures and homegrown renewables.”