Household energy price cap to be reviewed as gas and electricity prices soar
The energy price cap, which governs the maximum households can be charged per unit of gas and electricity, is to be reviewed as wholesale prices soar. Energy regulator Ofgem has today written an open letter to suppliers saying it will look at the methodology used to determine the price cap over the next few months.
Ofgem wouldn't comment on what impact its review could have on the price cap - it would only say that its aim is to "ensure it appropriately reflects the costs, risks and uncertainties facing suppliers".
Since September, 13 suppliers have gone out of business as wholesale prices (what fims pay) soar, with suppliers having to sell energy for less than the cost price, due to the current cap. A consultation will be published in November with a final decision expected in February 2022 ahead of April's new cap kicking in.
Based on current rules, it's almost certain the price cap will rise again substantially from April as it is based on wholesale energy prices between August 2021 and January 2022, and these prices have risen by up to 250% in recent months. Analysts at Cornwall Insight are predicting a 30% rise to £1,660/yr for someone with typical use, up from £1,277/yr for a typical household now.
MoneySavingExpert.com founder, Martin Lewis recently told households to do nothing and sit on the price cap as there are no fixes cheaper than the price cap at present. Martin also warned that it's important to avoid pressure to switch to a new fixed energy deal once your current one ends.
How the energy price cap works
The majority of homes in England, Scotland and Wales (Northern Ireland (NI) is different, see NI energy help) are on standard tariffs, dictated by the regulator Ofgem's price cap. In reality, this isn't actually a cap on price, but on rate, as the more you use, the more you pay.
The price cap sets a limit on the maximum amount suppliers can charge for each unit of gas and electricity you use, and sets a maximum daily standing charge (what you pay to have your home connected to the grid). The price cap is reviewed twice a year, with changes coming into effect in April and October.
The current cap, which was announced in August and came into effect from 1 October, rose sharply by 12% (£139/yr on average) compared to the previous cap.
Thirteen energy firms have collapsed in the past two months
Since September, 13 UK energy firms have collapsed affecting more than two million households. The table below details the collapsed firms and their so-called 'suppliers of last resorts', which are the firms directed by Ofgem to take on households who were previously customers of the defunct firms. If your energy supplier has gone bust you can see how your new firm and new tariff stack up in our news story.
|Avro Energy||Octopus Energy||580,000|
|Colorado Energy||Shell Energy||15,000|
|Goto Energy||Shell Energy||22,000|
|Igloo Energy||E.on Next||179,000|
|MoneyPlus Energy||British Gas||9,000|
|People's Energy||British Gas||350,000|
|PFP Energy||British Gas||82,000|
|Pure Planet||Shell Energy||235,000|