Powering the switch to green energy
05 Feb 2021
The UK’s energy industry regulator, Ofgem, has as expected announced a big rise in the price cap applied to some of the most common energy tariffs. This is likely to result in energy prices increasing almost £100 a year for a typical affected home.
The price cap is a limit on how much suppliers can charge you per unit of energy you use. It only applies to customers who are on a certain type of tariff, known as a ‘default’ or ‘standard variable’ tariff. Homes are placed on ‘standard variable’ tariffs if they don’t actively choose an alternative tariff. Because standard variable tariffs are usually much more expensive than other tariffs, the price cap was introduced in January 2019 to try to reduce the amount households on these tariffs were overpaying for their energy.
The price cap is set by Ofgem according to the ‘wholesale’ price of energy – the price that suppliers pay for the energy they sell on to households. Wholesale prices fell sharply last year in the wake of the first lockdown as demand for energy plummeted. As a result, the level of the price cap fell by £84 in October to its lowest level yet for the current winter period.
Demand for energy has since recovered, pushing wholesale prices back up to more normal levels. So, for six months from 1 April 2021, the price cap will increase by £96 to £1,138 for 11 million default tariff customers, and by £87 to £1,156 for 4 million pre-payment meter customers.
The big energy suppliers look sure to follow suite by increasing their default tariffs in line with the cap, pushing up bills for millions of homes by nearly £100 a year.
To read more about the energy price cap, visit the Ofgem website here.