Millions of homes face higher energy bills as Ofgem’s price cap rises to £1,738 per year

Millions of homeowners will pay more for their energy bills from January after regulator Ofgem announced the price cap will rise to £1,738 per year.

The price cap, currently £1,717 per year for average energy consumption, will rise by 1.2 per cent to £1,738 on January 1, 2025.

It means the average home will pay an extra £21 a year for energy until the price cap is reset in April 2025.

The January increase follows Ofgem’s last increase in October 2024, when the price ceiling was raised from £1,568 to £1,717.

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

Most homes in Britain are on a capped price energy deal, although the exact amount each household pays varies depending on gas and electricity use.

How much you will pay for gas and electricity from January 1, 2025, depending on how you pay your energy bill.

Electricity rates

If you are on a standard variable tariff (standard rate) and pay for electricity by direct debit, you will pay an average of 24.86p per kilowatt hour (kWh), compared to 24.5p today.

The daily standing charge will drop from 60.99p to 60.97p per day. This is based on the average in England, Scotland and Wales and includes VAT.

Gas rates

If you have a standard variable rate (standard rate) and pay for your gas by direct debit, you will pay an average of 6.34p per kilowatt hour (kWh), compared to 6.24p per hour today.

The daily standard rate is 31.65 pence per day, a slight decrease from the current 31.66 pence. This is based on the average in England, Scotland and Wales and includes VAT.

Why is the price ceiling 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 rates 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 this to avoid the collapse that befell many power companies, which were suddenly forced to sell power for much 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.

Some cheaper energy deals have been launched that undermine the price cap, both now and when the new one comes into effect on January 1.

Tim Jarvis, director general of markets at Ofgem, said: ‘While today’s change means the cap has remained relatively stable, we understand that energy costs remain a challenge for too many households.

‘However, with more rates coming to the market, there are ways customers can reduce their bills, so shop around and explore all options.’

But the higher energy bills have been criticized by older people’s charities, who say it is the latest blow to pensioners this winter.

Millions of pensioners will lose Winter Fuel Payment benefits worth up to £300 per person this winter after the government ruled it would only go to those on the benefits such as pension credit.

Caroline Abrahams, director of Age UK Charity, said: ‘Older people struggling without their winter fuel payment and praying for a cut in energy prices to help them in the new year will be bitterly disappointed today.

‘The news that the energy price cap will instead rise slightly is the latest in a series of blows for pensioners living on low or modest incomes, who are denied pension credits because they do not claim or qualify for them.’

What is the future of the price ceiling?

The price ceiling will be reset in April, July and October.

Cornwall Insight believes average gas and electricity bills will fall later in 2025.

A spokesperson for Cornwall Insight said: ‘Given the rise in the price cap in October, many will have hoped for a fall in the cap for January. Unfortunately, forecasts show that prices will remain relatively high for the rest of the winter.

“Looking further ahead, we currently forecast that the limit will decrease slightly in April 2025 and in October 2025.”