What is the price cap rise and how will it impact you? ITV News Political Correspondent Libby Wiener explains
Energy bills could rise by hundreds of pounds next year, analysts are warning.
Research agency Cornwall Insight has predicted further volatile gas prices and the potential collapse of even more suppliers could push the energy price cap to about £1,660 in summer, almost £400 higher than the £1,277 price cap set for winter 2021-22.
This would be an increase of 30%.
Regulator Ofgem reviews the price cap once every six months, and changes it based on the cost suppliers have to pay for their energy, cost of policies and operating costs, among other things.
Does the government acknowledge the alarm bells being signalled?
It comes just days after bills for many rose by at least £139 as the winter price cap came into force at the beginning of October.
Ofgem said the increase would hit around 15 million households due to a rise in wholesale prices.
Energy customers on default tariffs who pay by direct debit have seen the sharpest jump in prices since the cap was introduced in January 2019, taking average bills to £1,277.
Pre-payment customers will see costs rise by £153, from £1,156 to £1,309.
The October energy cap comes after the cost of gas on wholesale markets rocketed at unprecedented rates, up 70% since August and 250% since the beginning of the year, according to trade body Oil & Gas UK.
The latest cap, announced in August, was determined before further unprecedented increases in global prices, which has seen nine small UK suppliers collapse since the start of September, meaning the continued increase is likely to be reflected when the next price cap is revealed in 2022.
What is the price cap?
Regulator Ofgem sets its default energy price cap every six months; from 1 October 2021 this will be set at £1,277 which is calculated for an average household’s energy consumptionThe price cap is not how much your bills will be capped at - you will pay if you're on an standard variable tariff - use more energy, and you'll pay more.
Ofgem's cap applies to the price your supplier charges for each unit (kWh) of electricity and gas used, and your standing charge.
Speaking about the expected increase in 2022, Craig Lowrey, senior consultant at Cornwall Insight, said: “With wholesale gas and electricity prices continuing to reach new records, successive supplier exits during September 2021 and a new level for the default tariff cap (£1,277 for a typical dual fuel direct debit customer) for Winter 2021-22, the GB energy market remains on edge for fresh volatility and further consolidation.”
Energy regulator Ofgem reviews the price cap once every six months, and changes it based on the cost that suppliers have to pay for their energy, cost of policies and operating costs, among other things.
In a statement to the BBC, Ofgem acknowledged it was a “worrying time for many people”.
The regulator added: “The energy price cap covers around 15 million households and will ensure that consumers don’t pay more than is absolutely necessary this winter.
“However if global gas prices remain high, then when we update the price cap unfortunately the level would increase.
“Any customer worried about paying their energy bill should contact their supplier to access the range of support available.”