Ofgem - the UK's independent energy regulator - has announced proposals for the energy price cap to be updated quarterly instead of the current 6 monthly review. The proposal comes as households continue to struggle to pay energy bills due to recent energy bill price hikes, with some even resorting to using credit.
Ofgem says that updating the price cap every 3 months will be fairer for consumers as it means households will benefit from price drops much sooner than before. Additionally, energy companies will be able to predict energy usage more accurately which should, in turn, reduce the risk of more energy suppliers going bust, a contributing factor to increasing costs for consumers.
What is the energy price cap?
The energy price cap sets a maximum limit upon which energy companies can charge consumers for their default tariffs. The cap sets a limit on both the daily standing charges as well as the cost per unit of electricity and gas that companies can charge. The price cap, however, does not cap the amount of energy that consumers use, meaning bills can be higher or lower than the energy cap depending on the amount of energy they use. Currently, the energy price cap is reviewed every April and October.
The following table shows the current and previous energy price cap charges.
|Energy price cap period||Gas charges||Electricity charges|
|1st October 21 - 31st March 22||£0.25 daily standing charge
£0.04 per kWh
|£0.25 daily standing charge
£0.21 per kWh
|1st April 22 - 30th September 22||£0.26 daily standing charge
£0.07 per kWh
|£0.45 daily standing charge
£0.28 per kWh
|Increase from previous price cap (£)||£0.01 daily standing charge increase
£0.03 increase per kWh
|£0.20 daily standing charge increase
£0.07 increase per kWh
What changes are being proposed to the energy price cap?
Ofgem has published a 'minded-to' consultation which proposes that the energy price cap is reviewed quarterly instead of every 6 months. This would mean that the price cap is reviewed in January and July in addition to April and October.
Jonathan Brearley, CEO 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.”
Ofgem hopes that if the proposed changes go ahead, they can be enforced by October 2022.
What do the proposed changes mean for your energy bills?
A change in how often the energy price cap is reviewed will mean that consumers can take advantage of any price falls more quickly than the current updates. The energy price cap is updated to reflect the current market conditions which is why consumers have seen a recent increase in their energy bills. Whilst the proposed changes may allow consumers to benefit from falling energy prices, prices may also rise which could mean that consumers see an increase in their energy bills every quarter instead of every 6 months. However, regularly reviewing the price cap may mean that consumers are less likely to have a drastic change in cost each time the energy price cap is reviewed.
It is worth noting that if you are on a fixed-rate energy tariff, then the energy price cap does not affect how much you pay for your energy unless you switch to a supplier's default tariff. In the current market, a supplier's default tariff is likely to be the cheapest option, but as more deals become available you may be able to switch to a cheaper rate. One of the easiest ways to do this is via an energy auto-switching site.
How to save money on energy bills
With the recent rise in energy bills, we share some useful tips to help you reduce the cost:
- Use energy-saving lightbulbs
- Get energy-efficient appliances
- Have a smart meter to understand how much energy you are using
You may also wish to read our article, 'Grants and schemes for help with your energy bills' to see if you are eligible for any help with your energy bill this winter. For more money-saving tips, read our article 'How to save money on your household bills'.
What to do if you're struggling to pay your energy bill
The first thing you should do if you are struggling with your energy bills is to contact your energy supplier and ask for help. Suppliers legally have to offer help to consumers if they are struggling to pay their energy bills and the help can include affordable payment plans as well as access to emergency credit if you are on a prepayment meter. If you agree to a payment plan that later becomes unaffordable you should contact your supplier again to see if you can agree an alternative solution to repay what you owe.
If you receive benefits you may also be able to clear your debt with your energy supplier via the Fuel Direct Scheme. Alternatively, you may be able to get help with grants and schemes that are offered by energy suppliers which can be accessed even if you are not a customer. For more information on the schemes available visit the Citizen's Advice website.
Finally, if you need debt help there are numerous charities and organisations that can help you to regain control of your money with free financial advice. More information can be found below: