The energy price cap, which determines the maximum amount providers can charge households for energy, increased by 54 percent in April, sending Briton’s energy bills soaring an estimated £700 a year. As the market fluctuates and the Russia–Ukraine war poses increasing pressure on fuel and energy supply chains, the regulator warns the current bi-annual review may not be an accurate method to reflect prices.
On Monday (May 16), Ofgem proposed a consultation to look at whether the energy price cap should be updated quarterly rather than every six months.
This comes following criticisms that less frequent energy reviews and adjustments contributed to the collapse of several energy companies last year.
In a statement on its website, Ofgem said a more frequent cap review would make the market fairer and more resilient, as it would reflect the most accurate prices; also highlighting when prices fall, customers would benefit sooner.
Jonathan Brearley, chief executive of Ofgem said: “Our top priority is to protect consumers by ensuring a fair and resilient energy market that works for everyone. Our retail reforms will ensure that consumers are paying a fair price for their energy while ensuring resilience across the sector.
“Today’s proposed change would mean the price cap is more reflective of current market prices and any price falls would be delivered more quickly to consumers.
“It would also help energy suppliers better predict how much energy they need to purchase for their customers, reducing the risk of further supplier failures, which ultimately pushes up costs for consumers.
“The last year has shown that we need to make changes to the price cap so that suppliers are better able to manage risks in these unprecedented market conditions.”
Will my energy bills increase?
Ofgem has said it plans to bring in these changes from October, so households would not see an impact from this update until January 1 if approved.
However, after January 1, more frequent price cap reviews would likely bear an impact on your bills – for better or for worse. It all depends on wholesale energy prices.
Mr Brearley told Sky News: “Remember the total cost you pay over the year would be absolutely the same because that reflects only the cost of the energy that we buy.
“Yes, the price would go up more quickly as prices go up, but equally importantly, as those prices come down, then the price cap comes back down again.
He continued: “I remember back in the 2010s when people saw their prices go up and were waiting and wondering why prices didn’t come down equally quickly.
“The good thing about the price cap is that we will make sure it only reflects costs, and therefore it only reflects what you need to pay for your energy.”
He added: “With the Russian invasion of Ukraine, we are seeing a sustained increase, a further increase, in gas prices. So, the difficult news I have is that it is likely in October that prices will go up again.”
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The price cap is calculated based on a range of costs, the largest being wholesale energy costs, which is what providers pay the market for the product.
According to Money Saving Experts, this typically accounts for around 55 percent of a bill for a tariff priced at the maximum amount.
How long will energy prices be capped?
The energy price cap was initially due to remain in place until the end of 2020 however, the Government has announced its intention to extend this beyond 2023 if required.