Yahoo Finance Price cap changes raise prospect of 'immense' winter energy bill shock
Households are at risk of further energy bill increases in the depths of winter under plans to change the price cap more often, campaigners have warned.
The energy watchdog intends to reset the cap on electricity and gas bills every three months instead of every six so that changes to wholesale prices can be passed on to consumers.
It means households should feel the benefit of any falling prices sooner but will also be hit with any rising prices more quickly.
The first cap under the new regime is set to take effect in January, one of the coldest months when demand for energy is highest.
The changes follow months of high wholesale prices which pushed the price cap up by 54pc in April, leading to average energy bills of £1,971 in Britain, a key driver of the cost-of-living squeeze.
Peter Smith, director of policy at National Energy Action, the fuel poverty charity, said: "The changes significantly reduce the current protection the price cap affords all consumers over winter and opens the door to significant price rises during the coldest months of the year.
"In the short term at least, the changes will be particularly damaging for the poorest households; removing the certainty of the price they will pay over winter.
"This could cause further immense financial strain and damage health and well-being."
Ofgem, the energy regulator, argues that as well as helping consumers benefit from any fall in prices more quickly, the changes will stabilise the market by helping energy suppliers manage their costs.
Around 30 British household energy suppliers collapsed after wholesale costs rose sharply from September last year, as the price cap prevented them from passing costs on to their customers quickly enough.
This spate of market failures is thought to have added about £80-£85 to average energy bills, as the costs left behind by supplier failures are shared among all bill-payers.
Jonathan Brearley, Ofgem's chief executive, said: “Our retail reforms will ensure that consumers are paying a fair price for their energy while ensuring resilience across the sector.
“Today’s proposed change would mean the price cap is more reflective of current market prices and any price falls would be delivered more quickly to consumers."
The price cap is predicted to rise again when it is next reset in October, with Russia's war on Ukraine adding to high prices and volatility.
Gas prices have dropped back in recent weeks in the UK due to a surge in imports and limited capacity to send these on to Europe. However, the way suppliers buy energy as well as ongoing volatility means this is unlikely to mean a fall in the October price cap. The exact price will be determined depending on wholesale prices up to August.
Dan Norton, deputy director for the price cap at Ofgem, said: "We do expect it to be a further increase from the April cap level.
"I think there's still too much uncertainty to really pin down a particular number.
"There's even more uncertainty in terms of the January cap level; there's a long time to go before then, and a lot can still happen."
Gillian Cooper, head of energy policy at Citizens Advice, said: “We know many energy customers will be worried about seeing prices change more frequently, rather than being locked in for six months.
“These measures should reduce the risk of further supplier failures which have already left customers with a multi-billion pound bill.
"But they underline the need for a clear plan on how to protect families from further price hikes and support those struggling now."
