Price Cap Change Means Hike for Households
Now, deep into winter, British households are bracing for an unwelcome rise in energy prices. The energy regulator Ofgem recently revealed that the typical annual energy bill would increase from £1,834 to £1,928 in January 2024, a noteworthy 5% rise.
The less-than-positive news comes at a challenging time for many people, with the colder months typically leading to higher energy consumption. In this article, we explore the reasons behind this price hike and its potential impact on consumers.
Why are Energy Prices Increasing?
According to Ofgem, the increase in energy prices is primarily a result of higher wholesale costs incurred by suppliers. The price cap set by Ofgem, affecting 29 million households across England, Wales and Scotland, determines the upper limit of what suppliers can charge for each unit of gas and electricity. However, it doesn’t cap the total bill so higher usage still results in higher costs.
From January, the maximum price of gas will be 7p per kilowatt-hour (kWh) and 29p per kWh for electricity. Those with prepayment meters will see their typical annual bill rise to £1,960, while those paying bills quarterly will face coughing up £2,058. Standing charges, the fixed daily costs of connecting to a supply, will remain unchanged.
Dr Craig Lowrey, Principal Consultant at energy analysts Cornwall Insight, highlighted the unfortunate timing of the price increase, emphasising the strain it places on households heading into winter. He noted the UK's vulnerability to global events affecting energy prices due to its reliance on foreign energy supplies.
Ofgem boss Jonathan Brearley said: "We expect [suppliers] to identify and offer help to those who are struggling with bills".
How Will Consumers Be Affected?
A significant amount of consumers in the UK are already struggling to cope with the cost of living crisis and a period of high inflation. According to the latest figures, customers are currently in debt to energy suppliers by a total of £2.6 billion.
Roy Bridgewood from Manchester claimed a rise in prices would add extra financial pressure to many, revealing he has £1,400 of debt on his gas and electricity bills. He said: "The last payment I made on the gas was about £800. It was every penny I had left in my savings. I'm struggling to get work, struggling to pay bills and struggling to live. You feel vulnerable."
Given the challenging circumstances, consumers might opt to explore fixed energy deals. While the majority choose direct debit payments spread over the year, Ofgem advises caution when shopping around, urging consumers to consider all options carefully and seek independent advice.
The freeze placed on standing charges is a notable aspect of Ofgem's announcement, especially as anger grows over climbing fees. The regulator recently launched a review of standing charges, seeking public input.
The absence of a Government scheme equivalent to 2022's Energy Price Guarantee (EPG) and support payments has been a cause for concern. Gillian Cooper, Citizens Advice’s energy spokesperson, criticised the Government for missing an opportunity to help households in need.
As households in the UK weather the winter, the rise in energy prices presents a financial obstacle for many. Understanding the reasons behind this increase, exploring fixed energy tariffs and staying informed about potential changes can help consumers navigate these challenging times.
While the situation is undoubtedly difficult, proactive measures and informed decisions can translate to better management of energy costs during the coldest months.
How Can I Save Money on Energy Bills?
With uncertainty over the energy price cap and rising bills, consumers are looking for ways to save money on their energy more than ever. At UKPower, we can help you compare gas and electricity suppliers to find the cheapest energy prices, switch to a better deal and cut the cost of your energy bills.
Click here to run an energy price comparison, and see if you could be paying less for your gas and electricity.