What is the energy price cap and how much will my bills rise by?
Britons are about to face a rise in their energy bills, as the price cap increases today (April 1).
Energy companies have been going bust since 2021 as rising gas prices lead to a global supply crisis, which in turn led to more expensive energy costs.
Ofgem – the energy regulator for England, Wales, and Scotland – revealed a new price cap that will apply to average dual-fuel bills.
Coupled with a rise in the cost of living, the increased energy prices are understandably a worry for many households.
But what exactly is the energy price cap, and how much will bills rise by?
What is the energy price cap?
The energy price cap is the maximum figure that consumers can be charged on a variable dual-fuel rate for typical usage of gas and electricity for a six month period.
The cap is set by Ofgem and applies if you’re on a default energy tariff, whether you pay by direct debit, standard credit, or a prepayment meter.
The cap doesn’t apply if you:
- Are on a fixed-term energy tariff
- Have chosen a standard variable green energy tariff Ofgem has exempted from the cap
Essentially, if you’re not on a fixed tariff with an energy supplier for a set period of time, it means that your energy bill can only rise up to the cap.
It’s the rates per unit that are capped, so if you use more energy, you’ll pay more, as MoneySupermarket.com explains.
Ofgem estimates that 22 million households are currently on variable rates, the number went up by around two million customers whose suppliers went bust over the last year.
How much will my bills rise by?
Ofcom announced that the energy cap will be raised to £1,971 from April 1 – a jump of 54%.
This is up £693 from October’s 2021 cap of £1,277 per year.
The BBC report that a further 4.5 million people on prepayment meters will see a bigger increase of £708 a year.
Rishi Sunak has announced a series of reforms to help support families with the rising energy costs.
The Energy Bills Rebate will provide around 28 million households with an upfront discount on their bills worth £200.
Energy suppliers will apply the discount to domestic electricity customers from October, with the Government meeting the costs.
The discount will then be automatically recovered from people’s bills in equal £40 instalments over the next five years. This will begin from 2023, when global wholesale gas prices are expected to come down.
Households in council tax bands A-D will also be given a £150 rebate, meaning a total of £350 is available in government support.
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