HOUSEHOLDS across the UK are set to fork out hundreds more a year on energy bills as another rise to the energy price cap has been confirmed.
Energy regulator Ofgem has today confirmed that the price cap will rise to £1,971 from April.
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It was only last October that bill payers saw costs go up by £139 a year at the last price cap review.
Today’s cap adds another 50% to the average energy bill meaning many will see their annual bills soar by a record £693.
More misery could come later this year when the price cap is reviewed again, as it is adjusted every six months.
Soaring wholesale costs and international tensions are largely believed to be behind the price hikes.
The industry has called on the government to provide a package of measure to help households with the crippling bills and stop more energy providers collapsing.
Speaking in the House of Commons today, Chancellor Rishi Sunak said Government will “step in” to help households directly manage “incredibly tough” energy costs.
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Mr Sunak said: “The energy regular Ofgem announced this morning that the energy price cap will rise in April to £1,971, an increase of £693 for the average household.
“Without Government action, this could be incredibly tough for millions of hardworking families. So the Government is going to step in to directly help people manage those extra costs.”
But what is the energy price cap and why has it increased so much?
What is the energy price cap?
The energy price cap was brought in in 2019 and limits how much suppliers can charge for default tariffs.
It was created to try and improve competition in the industry and stop customers being ripped off by capping the amount that suppliers can charge.
Now it has become a safety net for millions.
? Read our Energy price cap live blog for the latest updates
There are around 22million UK households on default or standard variable tariffs offered by energy providers.
If you’re on a fixed-term energy deal, the cap doesn’t apply to you.
Historically fixed tariffs have been the cheaper option for households, but the cost of these has soared in recent months and most people are now better off sticking with the price cap.
The cap is set by the regulator, Ofgem, each summer and winter based on the underlying price of wholesale energy and the costs that companies face in supplying gas and electricity to customers.
Currently the cap is £1,277 a year on average for a typical household paying by direct debit – it rose 12% last October to its highest-ever level.
But the current cap will only last until the end of March this year, and will rise to £1,971 from April 1.
Why has it increased so much?
It has now been confirmed that the energy price cap will go up to £1,971 in April.
The increase had been widely expected amid soaring wholesale costs and a string of energy supplier collapses.
But it means households are now paying more than double what they were a year ago for energy.
Since the beginning of the Autumn season last year, households have been forking out hundreds more than they had to before, to foot their energy bills.
The energy regulator 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.
It’s because of rising wholesale gas prices impacted by the pandemic, lack of supply and other issues.
Wholesale prices shot up more than 250% in the space of a year.
As a consequence, the average wholesale gas price hit 470p per therm in December, up from 48.29p this time last year.
But importantly, Ofgem has hiked the cap to stop more suppliers going bust.
The battle between the high gas prices and what suppliers can actually pass on to their customers has lead over 30 companies to go bust.
They still had to fork out for the rocketing wholesale costs while not being able to charge customers similar rates to cover it, and many couldn’t cope.
Energy firms branded the situation a “national crisis” and called on the Government to help before any changes to the cap were first announced.
How is the cap calculated?
Different factors affect how much suppliers change what they charge you to meet the cap including where you live, your type of energy meter, and how you pay – by prepayment, direct debit or standard credit.
Your total energy usage will affect your total bill too.
But your supplier must automatically apply the price cap if you are on a default tariff.
You can often save money by shopping around as not all suppliers will charge the maximum amount.
But since the recent energy crisis has crippled most of the industry, many providers have taken up the full cap, and little competition has been seen between them.
Previous predictions from consultancy firm Cornwall Insight said the default tariff price cap could hit an eye-watering £2,240 by October this year when the next bout of changes comes into force.
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