What is the energy price cap and how high will it go next?

Ofgem has confirmed that energy bills for a typical household will rise in October from £1,971 to £3,549 a year, with further increases predicted next year.

Millions of Britons will see their energy bills rocket when the price of electricity rises from 28p per kWh to 52p on average between October and December, with gas increasing from 7p to 15p per kWh.

The record 80% October increase in the price cap, announced by the regulator Ofgem on Friday morning, means a typical default tariff customer will pay an extra £1,578. However, some forecasts have suggested bills could rise to £6,823 next year, said The Times.

Ofgem said predictions of future price cap levels should be treated with “extreme caution”, but no one is forecasting a return to previous prices anytime soon. “While the price cap is expected to fall later in 2023, it will remain very high,” said Sky News. 

What is the energy price cap?

Every few months, the energy regulator Ofgem reviews the maximum price that suppliers in England, Wales and Scotland can charge domestic customers on a standard – or default – tariff. This is otherwise referred to as the “energy price cap”.

Introduced in 2019, the cap was “designed to eliminate the ‘loyalty penalty’ that many millions of customers were paying by not shopping around for cheaper deals”, said the Financial Times. 

The cap sets the maximum price that energy companies can charge per kWh of gas and electricity, known as the unit rate, as well as the cost of getting power into your home, known as the standing charge. It serves as a cap on only the most expensive tariffs, and was designed to protect “those who are unaware of or are unsure of how to switch to a new deal or provider in order to save money”, the i news site said.

Millions of households opted for default standard variable tariffs that are covered by the cap when their previous fixed-price deals ended, “because there are no longer any cheaper fixed deals on offer”, The Times said in January. Standard variable tariffs were capped at £1,971 a year from 1 April.

Article source: https://www.theweek.co.uk/news/uk-news/954532/the-energy-price-cap-examined