It’s important to understand what the price cap is and who is into it
Speaking of the third episode of this season The Martin Lewis Money Show, Martin explained to viewers during his Q&A special on the energy crisis that one of the reasons households shouldn’t do anything right now is that they are protected by the price cap set by the Ofgem energy regulator and that there are currently no significantly cheaper offers.
He explained how the energy price cap works: “This limits the standard variable tariff – the standard tariff – that companies can charge. More than half of the households in the country are connected and many more will be. ”Cheap fixed offer ends or you do nothing.
But Martin said that even with the cap, there is no cap on the total amount you pay. He explained, “You often hear this figure of 1,277 pounds a year – that’s the upper limit for someone with typical use. If you use more, you pay more. ”He explained that the best way to imagine this is to limit the cost of each unit of energy consumed.
On October 1, the price cap increased by 12% (or 13% for those with prepayment counters). For someone with typical use, the cap was £ 1,138 / year, but now it’s £ 1,277 / year. Martin explained that the current price cap is based on wholesale energy prices – the price that suppliers pay for gas and electricity – between February 2021 and July 2021, but these have increased.
However, that increase is nothing compared to next April cap projections, which will be based on wholesale prices from August 2021 to January 2022 – a period during which wholesale prices have already risen sharply. And since wholesale prices have continued to rise, that most likely means an even bigger spike from April 2022.
Martin said, “The latest estimate is that the price cap will increase by 30% on April 1st based on the current execution rate – so to £ 1,660 / year based on typical usage. That means a cost increase of around £ 500 / year compared to a year before. There would have to be a tremendous upheaval so that there is not a huge increase. “
About a year ago, you could get tied to a tariff for around £ 800 / year with typical usage. If you were to get this deal now, you would automatically move to the price cap of £ 1,277 / year. However, if you went for the cheapest solution on the market, you’d pay £ 1,700 a year – more than double the original cost.