Ofgem will reveal its next energy price cap later this week - but does this mean your bills will rise again this winter?
The Ofgem energy price cap is currently set at £1,717 a year for the average dual fuel household paying by direct debit. This is up from the previous level of £1,568. Around 27million households are covered by the Ofgem price cap - but despite what its name suggests, the price cap does not put a limit on how much you can pay for energy.
Instead, it sets a limit on unit rates for gas and electricity, as well as the standing charges, which is what you pay to be connected to the grid. This means if you use more energy, you’ll pay more - or use less, and you’ll pay less. A rise in energy bills will be worrying news in particular for pensioner households who will no longer receive their Winter Fuel Payment.
Will energy bills rise again?
Ofgem make an announcement about its next price cap this Friday (November 22). This will be for its January price cap. Ofgem updates its price cap every three months. Energy analysts at Cornwall Insight are currently predicting the January energy price cap will rise by 1% from £1,717 to £1,736 a year for the typical household.
The assessment period for the January price cap is August 19 to November 15, 2024. Ofgem uses lots of different factors to decide its price cap - the largest being the cost of wholesale energy. Other elements include things such as the cost of maintaining pipes and wires that carry gas and electricity, network and operating costs. It also looks at VAT, payment method allowances and profits for the energy supplier.
What is the Ofgem price cap?
The Ofgem price cap sets a limit on unit rates for gas and electricity, as well as the standing charges. Ofgem calculates its headline price cap figure based on how much energy the typical household uses across England, Scotland and Wales. It estimates the average household consumes 2,700 kWh of electricity and 11,500 kWh of gas over 12 months.
But keep in mind that unit rate prices also vary by region, and also by how you pay for energy - so if you're a direct debit, prepayment, or pay on receipt of bill customer. For someone paying by direct debit, the unit rate for gas is to 6.24p per kWh and the standing charge is 31.66p per day. The unit rate for electricity is 24.50p per kWh and the standing charge is 60.99p per day.
You are covered by the price cap if you're on a "default" or standard variable rate (SVR) tariff. You'll be on an SVR tariff if you're not locked into a fixed deal, or you didn't switch to a new tariff when your previous fix expired. You may also roll onto an SVR tariff when you move home, or if you're moved to a new energy supplier if your existing one has gone bust.