How does your bill change as a result of the Ofgem energy price cap?

The upcoming Ofgem energy price cap will increase energy bills by 6 percentage points starting in April

What precisely is the cap, though?

The quarterly energy price cap, which determines the cost of gas and electricity for millions of consumers, is set by the energy regulator, Ofgem.

Ofgem recently revealed that the cap will increase by 63.4 percent from April, which is a significant setback for taxpayers.

What exactly is the energy price cap, though, and how does it affect your electricity and gas bills?

The energy price cap was implemented in 2019 to place a cap on the amount that suppliers could charge consumers on standard variable energy tariffs. It was a safeguard to make sure that households wouldn't be defrauded by exorbitant costs.

This April will see another increase in the energy price cap, which has already increased twice. Due to a rise in wholesale prices, the cap caused energy bills to increase by 10% on October 1st of last year. Then, on New Year's Day, the cap increased by 1.2 percent.

The price cap will rise once more on April 1st, but by a larger than anticipated 6 percentage points.

What is the cap on the price of Ofgem energy?

The highest unit rates that energy companies can charge for standard variable rate tariffs are determined by the Ofgem energy price cap. It sets a cap on the cost of electricity and gas per kWh as well as the fixed fees for each fuel. It does not set a limit on your overall energy costs. Your energy usage largely determines how much you will pay.

It is primarily determined by wholesale prices and is set every three months. The rate is also determined by supplier profit margins and the cost of maintaining network infrastructure.

In England, Wales, and Scotland, the cap currently affects roughly 22 million households. Rather than a price cap, Northern Ireland uses a tariff review procedure.

The average household pays 1,738 annually for typical usage under the current cap, which is in effect from January to March.

This figure is only for illustration purposes. Because the main networks are operated by private operators in each region, your fees will differ depending on your usage and where you live in the nation.

Under the current price cap, the average unit rates per kWh and daily standing charges for Direct Debit billpayers are as follows.

Gas.

Electricity unit rate: 6p34p per kWh; standing charge: 31p65p per day.

The energy price cap was first implemented to safeguard households that were at risk. The unit rate is 24p/kWh, and the standing charge is 60p/day. You would only be switched to a variable tariff prior to the energy crisis if you allowed your fixed deal to expire without finding a new one. The cap was introduced by Theresa May's administration to stop consumers from being overcharged in this case.

However, practically all fixed deals vanished from the market when the energy crisis struck in late 2021. This was caused by rising wholesale prices, which caused dozens of suppliers, including Pure Planet, Zog Energy, and Bulb Energy, to fail. Variable rate tariffs were typically far less expensive than the available fixes.

When their fixes expired, the majority of households switched to variable rates (and thus the price cap). Only during the government's Energy Price Guarantee (EPG) program, which ran from October 2022 to June 2023, did people not.

The EPG served as a buffer. In effect, it provided suppliers with subsidies, preventing consumers' bills from skyrocketing when the Ofgem price cap increased following Russia's invasion of Ukraine. Households were once again on the price cap rate in July 2023 after wholesale costs decreased and the Ofgem cap dropped below the EPG rate.

The return of fixed-rate energy deals since then has given consumers more options if they wish to try to outsmart April's price increase and obtain future payment certainty.

When will the Ofgem energy price cap be announced next?

On May 27, Ofgem will declare the next energy price cap. The cap will be in effect from July 1 through September 30.

What is the current status of standing charges?

The energy price cap's method of establishing standing charges is one of its main criticisms. Energy companies utilize these fees to fund the vital infrastructure that supplies electricity to our homes.

Standing fees allow you to pay hundreds of pounds annually before using any electricity or gas. They also differ based on where in the nation you reside. For instance, standing fees will be lowered for the majority of areas starting in April due to the upcoming price cap; however, some customers in London and the North Wales and Mersey region will experience an annual increase of up to 20.

The public was recently surveyed by Ofgem regarding the possibility of new standing charge regulations.

The regulator is currently seeking input on plans to require energy companies to provide zero-standing-charge tariffs. Energy providers would then be able to offer a dual pricing plan with or without a standing charge, giving consumers more options and lowering energy costs for certain households.

The one without a standing charge would have a higher price for each unit of energy. Under the current price cap system, both tariffs would be subject.

However, due to their complexity, the plans have drawn criticism from certain energy groups and charities. Additionally, they contend that standing charges won't get any cheaper because they will simply be moved to a different section of the energy bill.

Will the cost of energy decrease?

According to energy consultancy Cornwall Insight, this year's third quarter will see a decline in bills.

It indicates that the average annual bill for the July to September energy price cap will be 1,756, which is roughly 5% less than the 1,849 cap for the April to June period.

"It is extremely likely that forecasts will change multiple times before the July cap is set," the consultancy adds, indicating that predictions for the July price cap are still subject to the high levels of volatility in the energy market.