Energy price rises are set to continue as Ofgem announce the energy price cap is set to increase by 5% in the new year.
The announcement by the energy regulator Ofgem will mean typical energy bills will rise from the current cap level of £1,834 to £1,928 from the 1st of January when a new cap is set. This rate will remain until March 2024.
The change in the price cap affects around 23 million households. Here is everything you need to know as well as some energy saving tips.
What has caused the energy price rises?
The energy bills of around 23 million households in England, Wales and Scotland are currently governed by the energy price cap, which is set by Ofgem, after the government's Energy Price Guarantee, capping energy at £2,500, ended in July 2023.
Ofgem claim the 5% rise in the energy price cap is due to rising gas and electricity prices.
Energy prices tend to go up this time of year due to the increased heating demands during winter which places further pressure on energy companies.
Jonathan Brearley, CEO of Ofgem, said: “This is a difficult time for many people, and any increase in bills will be worrying. But this rise – around the levels we saw in August – is a result of the wholesale cost of gas and electricity rising, which needs to be reflected in the price that we all pay.
“We are also seeing the return of choice to the market, which is a positive sign and customers could benefit from shopping around with a range of tariffs now available offering the security of a fixed rate or a more flexible deal that tracks below the price cap."
How much will I now pay for my energy bills?
There are just two energy suppliers in Northern Ireland (SSE and Firmus Energy), which has its own regulatory system. The government says it will reveal details for Northern Ireland legislation on the energy price guarantee in due course.
With the energy price cap set at £1,834 until January, electricity is capped at 27.35 pence per kWh for gas it is 6.89 pence per kWh. This amount however does still vary depending on region.
When the price increases to £1,928 from January, electricity will be capped at 28.62 pence per kWh and gas will be capped at 7.42 pence per kWh.
Households using LPG and heating oil have also begun to receive discretionary payments to help them manage their bills. You can read more about this in our guide on help with heating oil costs.
Government plans to address long-term prices
Rising energy bills have been a key part of rising inflation in the UK. The price of wholesale gas in the UK rose to £5.55 per therm in August 2022, above the £4.93 in early March 2022 when Russia began its invasion of Ukraine.
Europe received roughly 40% of its natural gas from Russia, and while the UK only imported less than 5% of its gas from Russia, economic fears over Russia switching off its gas supply to Europe saw the UK affected by global market price increases.
What additional government support is available?
A universal joint priority services register has been put forward by Ofgem aiming to simplify and streamline assistance for vulnerable households receiving specific means-tested benefits.
The joint priority services register is a free and voluntary system that your supplier uses to ensure the correct support is given to its most vulnerable customers.
Although, customers currently in need of help with heating oil costs must individually register with each utility company. The joint priority services register would combine the existing databases of energy firms and other utility services, including water suppliers, to make it easier for customers to find which provider offers them the right support.
Only customers deemed vulnerable qualify for means-tested benefits with vulnerability being determined by various factors, such as age, illness, disability, or the presence of young dependents in their household.
Households who are deemed vulnerable qualify for means-tested benefits and receive the additional cost of living payments next year worth £900. Pensioner households will receive an extra £300, while people on disability benefits will get payments worth £150.
The government also launched an energy MOT service to help households establish how to make energy-saving improvements to their homes.
What is the energy price cap?
The Ofgem energy price cap is not to be confused with the government's energy price cap, called the Energy Price Guarantee. The Ofgem energy price cap was introduced in 2019 to limit how much firms can charge consumers and ensure that customers on default tariffs pay fair gas and electricity prices in the UK.
It is not a limit on consumer energy bills, but rather a cap on how much suppliers can charge per kWh of energy used and a maximum daily standing charge.
Ofgem had previously reviewed it every six months, but confirmed in 2022 that the energy price cap would be reviewed quarterly so it could bring stability to the energy market and reduce price shocks for consumers. This was before the government's price freeze superseded the price cap.
One of Ofgem’s directors, Christine Farnish, resigned over the announcement, claiming that the move “would add several hundred pounds to everyone’s bill in order to support a number of suppliers in the coming months”, adding that changes to the methodology used to set the cap appeared designed to protect private energy firms rather than prioritise homeowners’ needs.
How you can lower your energy bills
There are initiatives in place to provide homeowners with financial assistance in making energy efficiency improvements, including insulation grants
We've put together a comprehensive list of energy saving tips to help you navigate the energy crisis and lower your heating bills.
Included are some quick fixes you can do in the short-term, such as swapping to LED light bulbs, and higher-value improvements which come from making long-term investments in your energy efficiency, such as making sure your home has efficient insulation. A study earlier this year revealed that households saved £200 per year over 10 years having had new insulation installed.
The Energy Efficiency Infrastructure Group has called on the government to prioritise energy saving through home improvements, such as better insulation, which it says could save UK households more than £500 a year on energy bills.
What happens if my supplier goes bust?
Around two million households have seen their supplier cease trading since last summer, with around 40 energy suppliers ceasing trading since the beginning of 2021.
Bulb Energy, with 1.7 million customers, is one of the most high-profile firms to be affected, which was placed in Special Administration in December 2021.
If your supplier fails, Ofgem will make sure affected households continue to be supplied, and will not lose money owed to them. Your new energy supplier would then be responsible for taking on any credit balances you may have.
You can learn more about what to do if your supplier stops trading from the Citizens Advice Bureau.
What happens if I can't afford my bills?
Low-income households may be able to get discounts on their energy bills, with major suppliers including E.ON, EDF and British Gas offering warm home discount schemes.
Jonathan Brearley added: “It is important that customers are supported and we have made clear to suppliers that we expect them to identify and offer help to those who are struggling with bills."
Citizens Advice can also help if you are struggling to afford your fuel, and will take you through the steps you can take to sort this with your supplier.
