Energy price cap to RISE by £94 in January to £1,928, Ofgem reveals

Average household energy bills will soon rise by £94 to £1,928 per year as regulator Ofgem today confirmed its price cap for January 2024.

The price cap limits the maximum amount an energy company can charge for the units of gas and electricity consumption that consumers use, as well as daily fixed costs.

Ofgem said the current capped price of £1,834 per year had to increase by 5 per cent due to rising gas and electricity costs globally.

The current price cap determines the energy bills paid by more than 80 percent of British households, although the exact amount varies depending on gas and electricity consumption.

The nominal price ceiling applies to households with energy contracts with variable rates that pay by direct debit.

January’s average price cap of £1,928 will run for three months until it is reset in April 2024.

Ofgem chief executive Jonathan Brearley said: ‘This is a difficult time for many people, and any increase in bills will be worrying. But this increase – around the levels we saw in August – is the result of the rise in wholesale gas and electricity costs, which should be reflected in the price we all pay.

‘It’s important that customers are supported and we have made it clear to suppliers that we expect them to identify and offer help to those struggling with bills.’

For those who have a prepayment meter, average bills will rise from £1,861 now to £1,960 from January 2024 – an increase of £99.

Customers with standard credit meters will also pay an extra £99, with bills ranging from £1,959 to £2,058 for normal energy use.

For households with Economy 7 meters, electricity bills will go from £1,219 now to £1,272 in January, an increase of £53.

Fixed costs

The Ofgem price cap also regulates daily fixed costs, which are paid regardless of the amount of energy used.

For electricity, the average standing charge is 53 cents per day and will not change on January 1, 2024.

For gas, the typical standing charge remains 30 cents.

Homes using more than £3,000 a year on energy will have their bills capped at this level due to the government’s Energy Price Guarantee.

This is a government scheme whereby the state covers part of the gas and electricity bills for consumers.

It was launched at the £2,500 level in October 2022 and was increased to £3,000 in July 2023.

Why has Ofgem’s price cap become so important?

The price cap was introduced in January 2019 to prevent energy companies from overcharging their customers with variable rates.

At the time, most households had fixed-rate energy contracts and only switched to variable-rate tariffs if they did not renew at the end of their term.

But after energy bills started to rise in late 2021, gas and electricity companies responded by withdrawing all new fixed rate deals from the market.

They did so to prevent the widespread collapse that hit many power companies, which were suddenly forced to sell power for far less than it cost them to buy it.

As cheap fixed rate deals virtually disappeared, almost all homes ended up on variable rates, regulated by the Ofgem price cap.

Fixed rate gas and electricity contracts are making a comeback, but most rates are uncompetitive compared to capped rates.

What now with the energy bill?

Ofgem does not make energy bill predictions, but energy experts at analysts Cornwall Insight have accurately predicted price cap movements since the end of 2021.

Cornwall Insight believes the average capped energy bill will fall to £1,853.17 from April 1, 2024, then fall to £1,824.98 in the third quarter and rise slightly to £1,863.02 in October 2024.