Ofgem blamed October’s rise of £139 for 11million people on a 50% surge in wholesale energy costs in just six months – however these prices have sky-rocketed even more since them
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Energy bills could rise even higher than planned next month, after suppliers called for the price cap to be lifted to help safeguard smaller companies from collapse.
The energy price cap is the maximum amount Ofgem says firms can charge customers on variable tariffs – the most expensive deals in the market – every year.
On October 1, it will rise by £139, but with so many suppliers facing administration, there are now calls for the cap to be temporarily suspended – a move that could send bills surging even further.
Several big six energy companies are understood to be locked in negotiations with the Government and pushing for the cap to be scrapped.
Cabinet minister Alok Sharma said the price cap would remain in place “this winter” but couldn’t rule out removing it in future.
Energy regulator Ofgem announced last month that from 1 October the price cap will rise from £1,138 to £1,277 for 11 million consumers on default tariffs, while four million pre-payment customers will see the cap increase £153, from £1,156 to £1,309.
The warnings come after four small providers collapsed this month – MoneyPlus Energy, PFP Energy, People’s Energy and Utility Point.
The number of suppliers in the market is forecast to drop from 71 to just 10 by Christmas because they simply cannot shoulder the cost of record-high wholesale prices.
Larger firms have warned that the high cost of taking on customers of failed suppliers is also putting pressure on them – and many are reluctant to take on new households.
Under current forecasts, the cap could rise by at least £280 next February on top of October’s rise.
On Friday EDF announced that it had been appointed by Ofgem to take on 220,000 customers left without a provider after Utility Point folded.
Today, People’s Energy was taken over by British Gas.
After meeting with Ofgem’s chief executive Jonathan Brearley on Sunday, the Business Secretary Kwasi Kwarteng, said he had been “assured…of the well-rehearsed plans in place to protect the market and consumers”.
Mr Kwarteng added: “I understand this will be a worrying time for businesses and consumers. We are working hard to manage the impact of global gas price rises…The energy price cap is in place to protect millions of customers from the sudden increases in global gas prices this winter.”
Emma Pinchbeck, chief executive of Energy UK, which represents the sector, said: “At the moment we are monitoring the situation carefully, and there are lots of ideas for solutions to problems that [could] arise.
“The industry is well aware of the impact increased prices will have on our customers and is committed to providing extra support this winter. Anyone who’s worried about bills should contact their supplier.”
What is the energy price cap?
This is the maximum amount suppliers can charge customers on variable tariffs – often the most expensive plans on offer.
On October 1, Gas and electricity prices will rise by £139 for 11million people on variable tariffs.
This group will see their bills rise from £1,138 a year to £1,277.
Around four million prepayment customers will see an increase of £153 from £1,156 to £1,309.
These are averages so the exact change to your bills will depend on your usage.
Are energy prices out of control? Let us know in the comments below
Ofgem said the latest increase was driven by a record rise of over 50% in wholesale energy costs.
Comparison websites accused the regulator of failing to protect customers.
Stephen Murray, energy expert at MoneySuperMarket, said: ““When taken together with spring’s 9% rise, this 12% increase means billpayers that rely on the cap will have seen their bills shoot up by an eye-watering 21% since the start of the year.
“Cost wise, it’s equivalent to boiling a kettle for 555 hours straight. Worse still, it comes into effect on 1st October, as many of us turn our heating back on for the colder months.”
How much are energy bills rising on October 1?
Those on default tariffs paying by direct debit will see an increase of £139 from £1,138 to £1,277.
These are often the tariff people find themselves on after their fixed term ends.
Prepayment customers will see an increase of £153 from £1,156 to £1309.
What dictates the price cap?
Ofgem adjusts the price cap twice a year based on the latest estimated costs of supplying energy.
The biggest and most unpredictable factor is the wholesale cost of electricity and gas paid by suppliers and influenced by global markets. This accounts for roughly 40% of the overall price cap level.
How the gas shortage affects you
I cannot afford it – what should I do?
Shopping around for a better deal can save up to £100 a year, average figures show.
Households who are struggling to afford the cap can use a price comparison website to find a cheaper, fixed tariff, instead.
Be aware that price comparison websites will not factor in the higher price cap level until 1 October. So, if you compare deals before then, you should be able to save more than advertised.
Prepayment meter customers can still switch with debts of up to £500 on gas and £500 on electricity.
The supplier you switch to will take on the debt and you will repay them instead under an agreed repayment plan.
See our guide on how to switch your energy deal, here.
What type of deal should I switch to?
Fixed deals are the only way to avoid the volatility of the price cap. However, there are different durations of contract depending on the tariff that you sign up for.
Typically, most households will opt for a 12 month fixed deal, meaning that they can take advantage of the best market rates – and review their plan annually.
A 24 month fixed deal might be a better option for other households however, if you do commit to a 24 month plan make sure to choose a deal with zero exit fees. This means you can switch away without any hefty exit charges.