Ofgem has today confirmed that the proposals to change the frequency in which the energy price cap is reviewed - initially reported by us in May - are due to come into force. This means that the energy price cap will now be updated quarterly instead of the current six monthly updates. The change comes ahead of the winter months when consumers are set to expect another hike in energy bills.
What is the energy price cap?
The energy price cap sets the maximum amount that suppliers can charge consumers for units of energy. The energy price cap has risen sharply in recent months due to an increase in wholesale costs and the cost to supply energy to our homes. Ofgem is set to announce the latest energy price cap at the end of August.
What changes have been confirmed by Ofgem?
Ofgem has announced that the energy price cap will be reviewed and updated every quarter instead of every 6 months. The changes are designed to protect consumers from sudden price hikes as well as ensure that consumers benefit quicker should prices fall. Ofgem says that the changes ‘are being made so that prices reflect gas and electricity costs more quickly and accurately.’
Jonathan Brearley, CEO of Ofgem, said: “I know this situation is deeply worrying for many people. As a result of Russia’s actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before. And that means the cost of supplying electricity and gas to homes has increased considerably.
“The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now. Today’s changes ensure the price cap does its job, making sure customers are only paying the real cost of their energy, but also, that it can adapt to the current volatile market. “We will keep working closely with the Government, consumer groups and with energy companies on what further support can be provided to help with these higher prices.”
What do the changes mean for consumers?
The price cap was previously reviewed twice a year, in April and October. With the changes announced by Ofgem today, the price cap will be reviewed in January and July in addition to April and October. The regular reviews mean that the prices consumers are charged for energy are more accurate as they reflect the current gas and electricity prices. This should prevent drastic price hikes for consumers and allow companies to better manage any risks to prevent them from collapsing. In turn, this should create a more stable environment and hopefully reduce disruption in the energy sector as well as hopefully reduce increased costs for consumers.
Remember the price cap sets a limit on how much energy suppliers can charge per unit and does not limit how much you pay for the energy you use
How to save on your energy bills
With energy bills continuing to rise we share some money-saving tips to help reduce your energy costs:
- Track how much energy you are using with a smart meter
- Switch to energy-efficient appliances
- Use energy-saving light bulbs
For additional information read our article, ‘How to save money on your household bills’. You can also see if you are eligible for any grants or schemes in our article, ‘Grants and schemes to help with your energy bills’