Ofgem’s next adjustment of the energy price cap, to take effect from 1 April, is expected to erode the savings households made when the cap was lowered by £84 in October.
Jonathan Brearley, the regulator’s chief executive, urged households to brace for higher energy bills this spring, driven by surging wholesale gas and electricity prices and high levels of consumers defaulting on bills.
The price cap fell to its lowest level yet, £1,042 per year for a dual-fuel household with typical use, from October, following months of sliding wholesale energy prices due to lower demand in the early months of the pandemic. The energy price cap, in place since January 2019 and adjusted biannually, limits the bills of 11 million households on standard variable tariffs.
A bill hike commensurate with the October cut would take the cap to £1,126 per year, the same level it was at between April and September 2020. But it will fall on households which have endured more than a year of pandemic restrictions and economic upheaval, with many already paying higher energy bills due to home working and hundreds of thousands already in debt to their supplier.
According to estimates from Citizens Advice, an additional 600,000 households fell behind on their energy bills between February and September last year, taking the total number of household owing money to their supplier to 2.1 million. The number is expected to be still higher now.
The hike, the level of which will be confirmed early next month, will also coincide with the closure of the government’s job support scheme at the end of April.
“I understand that any change in energy prices right now is not going to be welcomed by customers,” Brearley said.
He attributed the pending bill increase to rocketing prices in the wholesale markets. Unusually cold weather in Europe, low renewables output and a global scramble for liquid natural gas sent whole electricity prices in the UK climbing to their highest level ever recorded earlier this month and prices have stayed robust in the intervening weeks.
The price cap increase may also include up to £21 to offset customers defaults and the high levels of unrecoverable debts carried by energy suppliers. But the exact amount hasn’t been confirmed.
Brearley urged consumers wishing to dodge the price hike to search for a better deal. “The price cap is intended to protect customers against unfair charging. It’s never intended to be the best price in the market,” he said. “If you want the best price then you should get in there and switch your supplier. I’ve just done so myself, and I do it every year. That is the best way to get good value.”
Switching in the energy market has recovered from its doldrums during the early months of the pandemic. ElectraLink record 6.2 million changes of supplier in 2020, down just 2.3% from the previous year. Trade group Energy UK found that 5.95 million households moved to a new electricity supplier in 2020, down 6.5% from 2019.
Ofgem is also expected to raise the cap on pre-payment tariffs, currently set at £1,070 per year, by a similar or higher amount. That cap limits the energy costs of the four million households with prepayment meters.
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