It's no secret that the energy crisis left millions of us concerned about the rise in the cost of energy bills.
Now, in response to the sky-high wholesale gas prices, that have quadrupled since January 2021 causing almost 30 smaller suppliers to go bust, Energy regulator Ofgem has announced that the energy price cap will increase by almost £700 – going from £1,277 to £1,971 per year from 1 April 2022.
This is what to expect, how to act plus, tips from industry experts on how to save energy at home to keep bills down where possible.
Who will be affected by the energy price cap?
The cap applies to those on default or standard tariffs. The increase is even higher for prepayment customers, who will see an increase of £708 from £1,309 to £2,017.
It is expected that 22 million households will be affected. Jonathan Brearley, chief executive of Ofgem, said: 'We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.'
What is the energy price cap and how does it work?
The energy price cap was introduced in January 2019 and is designed to limit the amount suppliers can charge for energy, to ensure consumers on default tariffs are paying a fair price. Without it, they could charge what they like and bills could get out of control.
On the flip side, as energy suppliers are facing unprecedented cost increases, the cap needs to be increased as suppliers cannot afford to supply energy for less than they have paid for it.
Brearley adds: 'The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.'
When will changes take effect?
The cap is reviewed twice a year, with changes coming into force in April and October. The cap takes into account the wholesale cost of energy and it can go up or down.
Those on a default tariff will be affected by the cap increase, but if you are still on a fixed rate tariff, you will be unaffected while on your current tariff.
Will switching to a fixed rate tariff keep my bills low?
Unfortunately not. With spiraling wholesale costs, many energy suppliers have removed their fixed rate tariffs from the market so there are no deals to be found. If you are on a fixed rate tariff, your bills will remain unaffected, but when your deal ends, you will be moved to a standard variable tariff (which is protected by the cap).
Similarly, if your supplier has gone bust, you will be moved to a standard variable tariff with a new supplier.
So the best advice for now, is to sit tight and do nothing. Any fixed rate tariffs out there are likely to be more expensive than the cap.
What should I do if I struggle to pay my energy bills?
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, says: 'The energy price cap affects 22 million households – up from 11 million this time last year. That’s almost 80% of all homes in the UK, and we’ll all see our prices rise a staggering 54%. To make matters worse, it kicks in from April, when we face impossible pressure from price rises on all sides, with the added stress of higher National Insurance and Council Tax bills on top of rising food and petrol prices.'
If you find you are struggling to pay your bills, in the first instance you should speak to your energy supplier as soon as possible as you may qualify for extra help.
There is also help coming from the Government for those worst-affected households. Chancellor Rishi Sunak has announced a number of measures, including a £150 council tax rebate for those in tax bands A-D. There will also be an energy bills discount of £200 in October, but that is only a temporary measure as that payment will need to be paid back in the form of an annual payment of £40 from 2023.
You should also consider how you can use less energy at home to keep bills as low as possible. Inexpensive measures include turning the thermostat down by a single degree, swapping to energy-saving light bulbs and washing your clothes on a cooler cycle. It is also worth considering draught-proofing doors and windows around your home and getting your boiler serviced to make sure it’s working as efficiently as possible.