Energy bills will rise in October after the industry regulator announced a 10% increase in its cap on energy prices.
Under the new price cap, the average annual energy bill will rise to £1,717 a year for gas and electricity, up £149 from its current level of £1,568, which has been in place since July.
What is the price cap?
The price cap is set every quarter by Ofgem, the energy regulator for Great Britain, and imposes a maximum on how much suppliers can charge their 29 million household customers per unit of gas and electricity.
It was introduced in 2019 to protect consumers who did not shop around for their energy and ensure they were not paying over the odds to subsidise other customers. However, after prices started to rise and smaller energy companies began to fail, it became the default tariff for providers and now most households pay prices at the level of the cap.
Although we refer to a cap, there are actually several caps as prices vary by region and according to how you pay. The cap is higher for standard credit customers – those who pay their bill in arrears – than it is for those who pay by direct debit or on a prepayment meter.
The average price cap for standard credit households will go up by £161 to £1,829.
How much will I pay?
What you pay will depend on how much you use: the cap is based on typical usage but unless your consumption is identical to those used in Ofgem’s calculations your bill will be different.
Energy providers have some flexibility within the cap but most tariffs will be similar to the figures laid out by Ofgem. These put the new unit price for electricity at 24.5p per kWh and for gas to 6.24p per kWh for direct debit customers.
Under the new cap, the standing charge for a direct debit customer rises marginally to 60.99p a day for electricity and 31.66p a day for gas from 1 October. You will face these charges even if you do not use any energy, so that’s about £6.50 a week – the equivalent of £338 a year – you cannot avoid.
Will standing charges keep rising?
About five years ago, standing charges added up to £182.27 a year, so there has been a big leap in the cost of simply having an energy supply. The charges are used by providers to cover lots of costs, including paying for infrastructure and staff and for providing the warm home discount for those in need.
Campaigners have called for changes to prevent the poorest customers facing rising costs even if they choose to reduce their energy usage. Ofgem launched a consultation on standing charges last November, and on Friday said it was considering changes that could reduce them by between £20 and £100 a year.
One change would be to move some of the cost to the unit price instead but Ofgem warned that this could raise energy bills by 10% for 500,000 poorer households and would hit vulnerable households who need to use more energy.
It is asking energy suppliers to offer tariffs that have no or low standing charges – these would probably have higher unit rates but would mean reducing energy use would have a bigger impact on households’ bills.
How do prices compare with last year?
The cap is a bit lower than it was for October to December 2023 and below the January to March price. Last October it was set at £1,834 for three months and then on 1 January it went up to £1,928.
However, it remains well above the level it was at in 2021, before Russia’s full-scale invasion of Ukraine, when the winter cap was £1,216. And there is less government help available. Cost of living payments for vulnerable households have ended – these were worth up to £300 last autumn and £299 this spring.
Pensioners have lost their cost of living payments – also worth up to £300 – and the winter fuel payment is to be means-tested. The latter was previously paid to anyone on a state pension and worth £100 to those who were not on other benefits, which would have gone some way to covering the winter price increase.
Can I get a better deal?
Yes. Energy providers have come back into the market with some deals that are cheaper than the new price cap.
Outfox the Market has a “Fix’d Dual Aug24 v4.0 tariff” that costs almost exactly the same as the current price cap, which means it will be cheaper than October’s rates. Most of the big providers have fixed-rate deals that are below the new cap, and there are some deals, including one from EDF, which are variable but will always be below the cap.
Some of these deals come with penalties for moving away within the fixed or discount period.
What help can I get?
The winter fuel payment will still be available to pensioners who get pension credit. Alongside that, those pensioners and other vulnerable households will be entitled to the cold weather payment – this is £25 a week paid if the average temperature in your area drops to 0C or below for seven days running between 1 November 2024 and 31 March 2025.
The warm home discount is £150 off your electricity bill, which is applied automatically by your provider if you qualify.
The energy providers have their own support funds to help those who are struggling. Most are solely for their own customers but the British Gas Trust also offers help to households who are signed up with other companies. You will need to apply if you want a grant from these funds.