UK markets open in 32 minutes
  • NIKKEI 225

    27,885.87
    +65.47 (+0.24%)
     
  • HANG SENG

    19,358.67
    -159.62 (-0.82%)
     
  • CRUDE OIL

    77.54
    +0.61 (+0.79%)
     
  • GOLD FUTURES

    1,770.80
    +3.40 (+0.19%)
     
  • DOW

    33,947.10
    -482.78 (-1.40%)
     
  • BTC-GBP

    13,958.78
    -309.13 (-2.17%)
     
  • CMC Crypto 200

    401.92
    -9.29 (-2.26%)
     
  • ^IXIC

    11,239.94
    -221.56 (-1.93%)
     
  • ^FTAS

    4,143.21
    +4.40 (+0.11%)
     

Ofgem energy price cap to be updated every three months ahead of ‘challenging winter’

Energy bills  File photo dated 03/02/22 of an online energy bill, as the biggest jump in domestic energy bills in living memory has come into effect as charities warn that 2.5 million more households are set to fall into
Energy bills are set to rise further in the coming months. Photo: PA

Ofgem has warned of a "very challenging winter" for UK households as it confirmed changes to the price cap review process that will allow energy bills go up and down more quickly.

The regulator currently updates its price cap twice a year – in April and October — but it will now review the price cap four times a year instead – in January, April, July and October

Ofgem said the change to when the energy price cap is updated “will go some way to provide the stability needed in the energy market, reducing the risk of further large-scale supplier failures which cause huge disruption and push up costs for consumers,” adding: “It is not in anyone’s interests for more suppliers to fail and exit the market.”

Read more: Millions of UK households struggling to pay phone bills, survey finds

What this means for households is that energy bills will rise and fall much more quickly.

Ofgem says the idea of reviewing its price cap more often is so energy companies can provide more accurate pricing for customers.

The regulator will confirm how much its October price cap will rise by on August 26.

It comes as energy bills continue to spiral, with analysts predicting the October price cap could hit £3,358.

Energy experts at Cornwall Insight are then predicting a further rise to £3,616 in January 2023.

This price cap was last adjusted in April this year, rising from £1,277 to £1,971 per year on average.

Energy bills are set to soar even further.
Energy bills are set to soar even further.

Jonathan Brearley, chief executive of Ofgem, said: “I know this situation is deeply worrying for many people. As a result of Russia’s actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before.

"And that means the cost of supplying electricity and gas to homes has increased considerably.

“The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now.

"Today’s changes ensure the price cap does its job, making sure customers are only paying the real cost of their energy, but also, that it can adapt to the current volatile market.”

Ofgem said the change to when the energy price cap is updated “will go some way to provide the stability needed in the energy market, reducing the risk of further large-scale supplier failures which cause huge disruption and push up costs for consumers,” adding: “It is not in anyone’s interests for more suppliers to fail and exit the market.”

Read more: UK cost of full tank of petrol falls £5 in July

It said that although the UK only imported a small amount of Russian gas, as a result of Russia’s actions, the volatility in the global energy market experienced last winter had lasted much longer, with much higher prices for both gas and electricity than ever before.

As expected, Ofgem also warned that as a result of the market conditions, the price cap would have to rise to reflect increased costs.

Meanwhile, businesses are facing energy bill increases of up to 500% that could put their survival in jeopardy this winter, The Times reported.

Energy costs for companies are rising even faster than for households and risk pushing businesses "over the edge" unless the government intervenes, Cornwall Insight said.

Companies usually negotiate fixed-price energy contracts to begin from the beginning of October.

Firms whose two-year contracts are coming to an end face a fivefold increase, while those who took out a contract a year ago are likely to see bills double.

National Energy Action director of policy and advocacy Peter Smith said: “Ofgem moving ahead now with passing price cap changes on to households quarterly rather than every six months wasn’t necessary and unfortunately means further significant price increases in January are inevitable.

“Average annual bills are already predicted to increase by £1,200 a year – a 177% increase since last October. Now, householders can expect further hikes just after Christmas, in the middle of heating season when energy costs are typically at their highest.

“January is also usually a time of increased mental health problems and further hikes in bills will sadly lead to increased misery and huge anxiety for energy consumers across Great Britain, particularly for the poorest households. It’s disappointing that Ofgem has not listened to these concerns. They could have used their discretion to offset this avoidable outcome by starting the reforms in April when energy demand starts to fall.

“This change also strengthens the growing calls for deeper price protection for the poorest households, something Ofgem can and must help support.”

Gillian Cooper, head of energy policy at Citizens Advice, said: “Something that’s added to all our bills is the cost of supplier failures. Changing to a quarterly price cap should limit the risk of any more suppliers going bust, which is a good thing. But our bills are already incredibly high and still rising.

“The Government was right to bring in financial support for people, but it may not be enough to keep many families afloat. It must be ready to act again before winter draws in.

“Ofgem must make sure suppliers are helping customers who are struggling to pay. It should hold energy companies to account so people aren’t chased by debt collectors or pushed onto prepayment meters when they can’t keep up with bills.”

Watch: Why are gas prices rising