UK Energy Regulator Unveils 5% Rise in Energy Price Cap
UK energy regulator, Ofgem has announced a 5% increase in the energy price cap for the first quarter of 2024, from January 01 to March 31.
According to a statement obtained from the Ofgem website, an average household paying by direct debit for dual fuel equates to £1,928, a rise of £94 over the course of a year – around £7.83 a month. The price cap, updated every quarter, sets a maximum that can be charged to customers for energy bills.
Ofgem CEO, Jonathan Brealey said, “This is a difficult time for many people, and any increase in bills will be worrying. But this rise – around the levels we saw in August – is a result of the wholesale cost of gas and electricity rising, which needs to be reflected in the price that we all pay.
“It is important that customers are supported, and we have made clear to suppliers that we expect them to identify and offer help to those who are struggling with bills.
“We are also seeing the return of choice to the market, which is a positive sign and customers could benefit from shopping around with a range of tariffs now available offering the security of a fixed rate or a more flexible deal that tracks below the price cap.
“People should weigh up all the information, seek independent advice from trusted sources, and consider what is most important for them whether that’s the lowest price or the security of a fixed deal.”
The energy regulator said its priority is to protect consumers and ensure that they pay a fair price for their energy noting that today’s price increase is driven almost entirely by rising costs in the international wholesale energy market due to market instability and global events, particularly the conflict in Ukraine.
The regulator reiterated that it would continue to use all levers available to ensure costs are spread fairly and customers struggling with bills are supported. It has today further developed plans to permanently remove the so-called ‘prepayment meter premium’ to ensure that prepayment customers are charged the same standing charge as direct debit customers. Ofgem has already launched a ‘Call for Input’ on standing charges running until 19 January 2024.
Ofgem recently set out new rules for suppliers making clear that they should be prioritizing inquiries from vulnerable customers who need help and proactively reaching out to households if they miss two monthly or one quarterly payment, check to see if they are struggling with bills and, if so, offer support such as affordable payment plans or, if appropriate, repayment holidays.
The regulator has also taken robust action to raise standards of customer service and worked in conjunction with suppliers and consumer groups to encourage the industry to support those struggling with their bills, including the Winter 2023 Voluntary Debt Commitment recently announced by Energy UK and Citizens Advice.
A Statutory Consultation on leveling standing charges for prepayment meter and direct debit customers so customers pay the same daily charge has been published today.
Previously, customers on prepayment have been charged more than those who pay by direct debit to cover the additional costs and resources required by suppliers to provide their services.
In October 2022, the government introduced measures to temporarily remove this ‘PPM premium’ via the Energy Price Guarantee, which remains in place until April 2024.
Following a consultation this summer, Ofgem is now proposing an enduring solution that would ‘levelise’ these standing charges to coincide with the end of that government support. This consultation also sets out proposals to share the costs of bad debt more equally across customers to reduce the premium paid by standard credit customers (those who pay on receipt of a monthly or quarterly bill for the exact amount of energy used).
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Under the terms of the regulator’s proposal, this would save PPM customers around £50 a year, reduce Standard Credit bills by around £45 a year but add around £20 a year for direct debit customers. Ofgem is keen to hear views on this proposal from all interested parties.
This follows the launch of a wider conversation on the issue of standing charges last week and how they should be set, which has already attracted a high number of responses in the first week of the consultation.
