Energy price cap to rise again in October

Man checking bank balance

Despite reports, including from ourselves, that Ofgem’s energy price cap was not expected to be increased in October, a new report by experts suggests that the industry regulator will be forced to put up the maximum yearly rate for standard variable tariffs by around £100 in the autumn.

Ofgem was in the process of consultation on its own proposal to fix the energy price cap until 2022, but a report from analysts Cornwall Insight suggests that this 

What is the energy price cap?

The energy price cap is a limit to the price that energy providers can charge you for gas and electricity if you’re on one of a few particular tariffs. It applies to standard variable or ‘default’ tariffs - which is a tariff you didn’t choose to be on, but are usually moved to after your term ends on a fixed deal.

There are also different energy price caps for other types of tariff, such as prepayment. The price caps for the period of April 1 to the end of September 2021 are listed in the table below:

Tariff type Ofgem price cap
Default dual-fuel £1,138
Prepayment £1,156
Standard credit £1,223

Source: Ofgem

It’s important to note that the rates for fixed tariffs are not capped, and that certain renewable tariffs are also exempt from the energy price cap. For a full rundown of all the details around the price cap and how it works, head over to the Ofgem website, where a full guide is available.

Why might the energy price cap go up?

Reports in recent months have suggested that Ofgem is reluctant to increase the cap, but a report from consultancy Cornwall Insight has been released which suggests that skyrocketing wholesale prices will force the regulator to allow providers to charge more. Wholesale prices are currently at their highest rate since the UK was hit by the infamous ‘Beast from the East’ in late February and early March 2018.

A senior consultant at Cornwall Insight, Dr. Craig Lowrey, explains these increases:

Wholesale prices have been hit by a combination of factors. Underlying commodity prices have risen, so, too, have carbon prices reaching a high of €50 per tonne of carbon and more than doubling over the past year. On top of this, underlying gas prices have risen considerably due to a cold winter across Europe and low levels of gas in storage facilities.

These factors, it is estimated, will lead to an increase of 9.8% to the average customer’s annual energy bill if they’re on a standard variable tariff for dual fuel, with the estimate jumping from £1,138 to around £1,250.

When you consider that just a year ago the energy price cap was set at £1,042, this represents a huge difference to customers. If you’ve been on one of the major providers’ standard variable tariffs and you use the average amount according to Ofgem, your bill will be more than £200 more expensive from October.

You can, of course, save on your energy bills by switching to a provider offering a deal that’s below the energy price cap. There are plenty of options available to you, particularly if you’re willing to tie yourself down to a fixed tariff for a bit, and we always recommend shopping around extensively before you decide on deal.

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