Regulator Ofgem raised the price cap on both standard and standard tariffs today from £ 1,138 / year to £ 1,277 / year for a typical dual-fuel household. This rate applies to those who have never switched and sets the default for those who have come from firm deals. It affects more than half of UK households.
Remember, the new cap is not the maximum someone will pay. The price cap sets a limit on the prices you pay for each unit of gas and electricity. So if you use more, you pay more.
When announcing the increase in August, Ofgem said the increase was due to rising wholesale prices for energy (what suppliers pay for gas and electricity). Since then, the energy market has plunged into a crisis, wholesale prices continue to rise to record highs and a total of nine energy companies go bankrupt in September.
Unfortunately, due to the skyrocketing prices, there are no offers that are significantly cheaper than the upper price limit. You can now do a Cheap Energy Club comparison if you want, but you almost certainly won’t find anything cheaper, as Martin explains in MSE’s weekly email.
If there are no cheaper offers, you will see the price cap as a six-month fixed offer
Having always been one of the most expensive offers, price-linked variable tariffs are now among the cheapest – cheaper than the cost price of energy. There are no offers for new customers that are significantly cheaper. In fact, very few providers currently even allow new customers to switch to their price-linked tariffs.
Since this new cap is in place through April 1, 2022, you could treat it like a six-month fixed rate that you can exit at any time (hopefully because cheaper deals return).
By comparison, if you want a fixed offer now, you’ll pay a lot more than a standard plan – the cheapest is a one-year fixed price from Scottish Power for £ 1,577 / year with typical usage, £ 300 more than the lid price.
On April 1st, the price cap is likely to rise significantly again – the current run rate is forecast to increase another 14% to £ 1,455 / year (typical usage) – still cheaper than today’s cheapest fixed price offer. If things continue to get worse, fixes may be a decent price in hindsight, but right now it seems like a very sizeable premium to pay for security and we assume it won’t be worth it for most
The big energy companies have all raised prices
Once again, the largest providers have predictably set their standard tariffs either at or within a pound of the cap. Here is the detail:
- If you have a credit meter … British Gas, E.on, EDF and Scottish Power have all raised the price of their standard tariffs to the maximum allowed under the new cap – £ 1,277 / year in typical usage, an average increase of £ 139 / year. SSE raised prices to £ 1,276 / year to just below the cap.
- If you have a prepayment counter … British Gas, E.on, EDF and Scottish Power have increased standard pricing to the maximum allowed under the separate prepayment cap – £ 1,309 / year for typical usage. SSE raised prices to £ 1,306 / year to just below the cap.
There are no savings for borrowers due to the poor market situation. Strangely enough, Ebico Living still has a very cheap prepayment offer. It’s a massive outlier, way cheaper than anything, but it could save someone on the new upfront price cap of around £ 250 a year. However, since it is a variable, this can change at any time. Do a prepayment comparison to see if it’s cheap for you.
How does Ofgem’s energy price cap work?
The price cap limits the maximum amount that providers can charge for each unit of gas and electricity you use, and sets a maximum daily base fee (what you pay to connect your home to the grid).
Because the cap limits the price that providers can charge for each unit of gas and electricity, you pay more when you use more energy; use less and pay less.
The price cap is reviewed twice a year, with changes coming into effect in April and October.
The new price cap for October 1st is based on the average wholesale prices for the six months to the end of July. But the wholesale price has exploded since then. We are now a third in the next evaluation period (August – Jan), which sets the upper limit from April 2022, which is why the analysts at Cornwall Insight are forecasting a jump of 14%.
In order for prices not to rise in April, wholesale prices would have to fall to roughly the lows of the pandemic for the last four months of the assessment period. Still, many analysts think they’ll stay high for the time being.
Are you having trouble paying your bill? There is now a lot of additional help
Emergency measures that have been taken to help people struggling with bills due to the coronavirus are still ongoing. Most importantly, your supplies are not interrupted – the disconnection from standard credit counters has been suspended while prepaid customers can get emergency or additional credit to ensure the lights stay on.
There are also a number of options providers can offer if you’re struggling, including full payment plan reviews, affordable debt settlement plans, payment breaks or cuts that give you more time to pay, and access to hardship funds. This all happens on a case-by-case basis. So contact your supplier as soon as possible if you have any problems.
There are also a number of energy grants to help people with certain benefits with winter bills. For full details, please see our Guide to Housing and Energy Subsidies or the Ofgem website for a full overview of the offers available and how to deal with payment difficulties. Lower-income individuals may also be able to apply for £ 140 for bills through the 2021/22 Warm Home discount.
Also, most people waste energy. We know wearing jumpers, turning down the thermostats, and not leaving the electrics on standby help, but we don’t always do this. Answers to frequently asked questions like “Should you leave the heater on all day or only turn it on when you need it?” Can be found in our 18 Energy Mythbusters Guide, and there is more help in Top Tips for Saving Heat.