Energy price cap: all you need to know as bills could rise to average of £1,714

Specialists say that family energy bills are anticipated to rise as winter approaches.

It mentioned a family utilizing a typical quantity of gasoline and electrical energy would pay £1,714 a 12 months from October.

It’s presently the bottom quantity for 2 years — £1,568.

Power regulator Ofgem is ready to announce the subsequent official quarterly value cap on Friday (August 23).

Right here’s every little thing it’s essential to find out about who units the energy price cap and the way it works.

The common family vitality invoice is ready to rise by 9% in October when the newest change to the value cap takes impact, in response to consultants

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What’s the vitality value cap and what’s Ofgem?

Ofgem, the Workplace of Fuel and Electrical energy Markets, is the unbiased regulator of the British vitality market and is meant to guard prospects. A key a part of its function is to set a restrict — a value cap — on what vitality companies cost prospects on default or normal and variable tariffs.

Ofem launched the value cap in January 2019. Though it was initially a brief measure, it has remained in place.

The cap is a regulatory measure designed to restrict the quantity vitality suppliers can cost prospects for his or her default or normal variable tariffs. It goals to guard shoppers from extreme vitality costs, particularly those that don’t swap suppliers commonly to seek out higher offers.

The cap applies if you happen to’re on a default vitality tariff, whether or not you’re paying through direct debit, normal credit score, or a prepayment meter — it doesn’t apply to a fixed-term tariff.

Beforehand, variable tariffs had been dearer than fixed-rate offers. Individuals are usually on these tariffs as a result of they fail to modify suppliers when a set time period has ended or their provider has been compelled to shut.

However, presently, fixed-term tariffs are dearer than the cap, which means most individuals are affected.

Ofgem mentioned in August 2022: “The worldwide rises we’re seeing in gasoline costs imply this can be a very difficult time. Proper now, this may increasingly imply you discover few better-value tariffs than being on a provider’s default charge lined by the Authorities’s vitality value cap, if you’re already on one.”

The cap limits the quantity suppliers can cost per unit of vitality (measured in pence per kilowatt-hour, or p/kWh) — and the utmost each day standing cost (the fastened value of being related to the vitality community).

It’s set at £1,568 a 12 months for a typical dwelling utilizing gasoline and electrical energy and paying by direct debit between July 1, 2024, and September 30, 2024.

That is £122 lower than the utmost quantity of £1,690 that started on April 1, 2024, and ended on June 30, 2024. The following announcement is ready to be made on Friday, August 23, and can cowl from October.

How does the vitality value cap work?

The vitality value cap limits the utmost quantity charged per unit of gasoline or electrical energy for purchasers on default tariffs. It’s primarily based on an estimate of typical utilization for a mean family. Because of this the cap doesn’t restrict the full invoice a family may obtain — if you happen to use extra vitality, your invoice shall be greater, and if you happen to use much less, you may pay much less.

The cap additionally features a most each day standing cost, the fastened value of getting vitality to your property. The cap is decided by the prices vitality suppliers face, which embrace wholesale vitality costs, community prices, working bills, coverage prices, VAT, and a margin for earnings.

The precise cap quantity varies relying on the way you pay in your vitality, whether or not via month-to-month or quarterly direct debit, on receipt of a invoice, or if you happen to prepay for it.

How is the vitality value cap totally different from the vitality value assure?

The vitality value cap and the vitality value assure (EPG) are associated however distinct mechanisms. After vitality costs soared following Russia’s invasion of Ukraine in February 2022, the UK Authorities launched the EPG as a brief measure to scale back the impression on households.

The EPG units a most value per gasoline and electrical energy unit, with the Authorities protecting any prices above this stage. This successfully restricted the standard annual vitality invoice to £2,500.

In contrast to the value cap, which displays wholesale vitality prices, the EPG was a Authorities intervention with extra safety. The EPG ended on March 31, 2024, and from July 1, 2023, vitality costs have been decided solely by the Ofgem value cap.

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Energy price cap: all you need to know as bills could rise to average of £1,714

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