Ofgem Price Cap Falls, but Household Bills to Rise
The energy regulator has lowered the maximum amount they can charge customers, but it is expected that bills will continue to rise.
Ofgem has announced that the limit on household electricity and gas bills will decrease to £3,280 beginning April 1.
It is a reduction from the previous ceiling of £4,279, effective from the start of January through the end of March, and reflects the decline in wholesale energy prices.
Ofgem regularly reviews the price cap, which establishes the maximum amount per unit of energy that suppliers may charge.
The amount is not the maximum that can be charged – customers who consume a great deal of energy will have higher bills – but instead reflects the average level of consumption.
The government’s energy price guarantee (EPG) protected households from the previous high price cap by capping the energy unit price, resulting in an average household bill of £2,500.
On April 1st, however, the EPG threshold for the average household will increase to £3,000. This will likely result in higher utility costs. Even with the £500 price cap reduction, the scheme is estimated to cost £26.8bn.
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According to energy consultancy Cornwall Insights, as households absorb the gap between Ofgem’s price cap and the EPG, the average household’s energy bills will likely increase by an estimated 20%, or £500 annually.
Dr. Craig Lowrey, the principal consultant at Cornwall Insight, stated that prices will rise even further when the end of the £400 energy rebate scheme is factored in.
“Unfortunately, the April forecast indicates that the price ceiling will remain above the increased energy price guarantee level.
While projections of a falling cap are positive, already-strapped households will receive little benefit before July.
Beginning in October, six monthly payments of approximately £66 were made to bill payers under the rebate program.
According to Cornwall Insights, spending on the EPG will be effectively zero from July until the end of 2023, as Ofgem’s energy price cap is expected to fall below the guarantee.
The July and October caps for Ofgem are anticipated to be below £3,000. Such caps would eliminate the price differential between what energy companies charge and what customers pay.
