From 1 October 2022, the energy price cap will increase to £3,549 per year for dual fuel, Ofgem has announced
Although the new energy price cap level, of £3,549, will take effect from 1 October 2022, some suppliers may begin increasing direct debits before this date to spread costs.
What is the energy price cap?
The energy price cap puts a maximum per unit price on energy that reflects what it costs to buy energy on the wholesale market and supply it to our homes. It also sets a strict and modest profit rate that suppliers can make from domestic energy sales.
It protects against the ‘loyalty premium’ – where customers who do not move suppliers or switch to better deals can end up paying far more than others.
Ofgem has introduced a number of additional measures
Alongside the energy price cap increase, Ofgem has also:
- Strengthened requirements for suppliers to have sufficient control over the key assets they use to run their businesses. Together, this and the direct debit rule changes build on existing requirements to boost supplier resilience to better protect customers from costs associated with supplier failures.
- Strengthened the rules around direct debits to ensure suppliers set them at the right level, meaning that customers only pay exactly what they need to. The changes will stop suppliers from building up excessive customer credit balances and using them in a risky way as working capital.
- Extended the Market Stabilisation Charge (MSC), which is paid by suppliers and helps protect customers from the cost of supplier failure.
- Extended the ban on acquisition only tariffs which ensures all energy tariffs are available to existing as well as new customers, ensuring all consumers can get a fair deal on their energy.
- Launched a review into the mechanism and level of profit margin available under the price cap to ensure that suppliers do not earn excessive profits and receive only a fair return for the services they provide to customers.
Government must respond to rising energy prices urgently
Ofgem’s CEO warns of the hardship energy prices will cause this winter and urges the incoming Prime Minister and new cabinet to provide an additional and urgent response.
The increase reflects the rise in global wholesale gas prices, which began to surge pre-pandemic and have been driven further to record levels by Russia switching off gas supplies to Europe.
Jonathan Brearley, CEO 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.
Energy prices have been driven by an ‘aggressive economic act by the Russian state’
“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.”
Energy prices could get significantly worse through 2023
Ofgem is currently not providing price cap projections for January, but the market for gas in Winter suggests that prices could get significantly worse through 2023.
Gillian Charlesworth, CEO of the Building Research Establishment (BRE), comments on today’s energy price cap increase news:
“Today’s news from Ofgem and the ensuing impact on energy prices will plunge thousands more households and businesses into financial difficulty. This will be worsened by the ongoing cost of living crisis as inflation and interest rates rise across the board.
“While there are important short-term actions that people can take to reduce their energy bills, this will not be sufficient to counter the 80% rise in energy bills coming on 1 October.
“With the energy price cap forecast to rise to over £6,000 by April, the Government must act now to reduce our demand for natural gas and shield consumers and businesses from future energy price shocks.
“Improving the energy efficiency of our homes and buildings is one of the only viable ways to do this. The UK has one of the oldest and draughtiest building stocks in Europe – a fact which unnecessarily inflates our demand for natural gas and, ultimately, leads to higher bills.
“Insulating our buildings is a simple and cost-effective solution to prevent energy bills from spiralling further and ensuring households and businesses see immediate savings year-on-year.
“It is also essential that the next Prime Minister ensures that any changes to the Green Levy do not result in cuts to energy efficiency schemes like the Energy Company Obligation (ECO), which are currently protecting the most vulnerable households from fuel poverty.
“Looking forward, we need a long term solution to the energy price crisis which shows no signs of abating. To break the link between global gas prices and the electricity bills we all pay, we must combine investment in energy efficiency measures with a switch to renewable generation: a clean power supply made for Britain, by Britain.”
The data is published on the Default tariff cap level: 1 October 2022 to 31 December 2022 publication.
