MILLIONS of Brits are in for a shock when the energy price cap is increased.
Bills will soar to an average of £1,971 a year – but when and why is it changing?
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When will the new energy price cap come into force?
The energy price cap limits the amount an energy company can charge you for a default tariff, based on average use.
It is reviewed twice a year and is adjusted to reflect the wholesale cost of energy.
The next adjustment was announced on February 3 and comes into effect on April 1.
It will see the average household bill soar by 54%, or £693 a year.
When did the energy price cap start?
The energy cap was introduced in January 2019 and is set by industry regulator Ofgem to ensure customers aren’t ripped off when their contracts end.
It sets a limit on how much suppliers can charge for out-of-contract or default energy deals based on factors such as wholesale energy market costs.
The total savings for individual customers will depend on how much energy they use, the price of their current tariff, whether they have both gas and electricity and how they pay for their energy.
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Does the energy price cap save you money?
Ofgem sets the price cap twice a year, each for a six-month period.
For example, suppliers were only able to charge up to £1,138 on their default tariffs between April and September 2021 based on a cap that was announced in February last year.
The energy regulator then announced in August that the price cap would rise by £139 from October 1 to £1,277 – the highest since the cap launched in January 2019.
This cap lasts until the end of March 2022, when a new limit will come into force from April.
Today Ofgem confirmed the new price cap will be £1,971 – adding £693 to the average annual bill.
It is usually possible to save money by shopping around, but this is unlikely to be an option for 2022 as energy prices soar.
Rates are rising across the board at the moment as all suppliers are hit by rising gas prices and increased demand.
Why is the energy price cap changing?
The energy price cap changes every six months, primarily based on average energy wholesale prices in the months prior to the update.
Over the past year, global wholesale prices have increased significantly so the cap is expected to match this.
A second price hike will come into effect later this year in October, which will likely to see the average household bill hit more than £2,000 a year.
Experts put this down to a worldwide squeeze of gas and energy supplies during the pandemic.
Specifically, this is due to a colder European winter in 2020 to 2021, a relatively windless summer, and increased demand for liquefied natural gas in Asia, the BBC reports.
