Millions of households across Britain are facing higher energy costs this winter after the regulator Ofgem confirmed its new price cap will come into effect in January.
What the new price cap means for your bills
The typical annual household energy bill for a home with average consumption, paying by direct debit, is set to increase by 0.2%. This means the average bill will rise from £1,755 a year to £1,758 a year from January 1st.
It is crucial to understand that the Ofgem price cap does not set a maximum limit on your total bill. Instead, it limits the maximum unit rates you can be charged for gas and electricity, plus the daily standing charges for being connected to the grid.
This means your final bill is entirely dependent on how much energy you actually use. If you use more than the typical household, you will pay more.
Understanding the Ofgem price cap
The price cap, which is reviewed every three months, will be active from January 1 until March 31, 2025. After this period, Ofgem will announce the next cap level for April.
You are likely protected by this cap if you are on a standard variable rate (SVR) tariff, which is what most households default to if they are not on a fixed-term deal. This includes over 30 million households, encompassing those with pre-payment meters.
The headline figure of £1,758 is based on Ofgem's estimate of typical usage: 2,700 kWh of electricity and 11,500 kWh of gas over 12 months. Your actual unit rates can also vary depending on which region of the UK you live in.
What happens next with energy prices?
While the January increase is small, experts at Cornwall Insight are predicting that energy bills could rise again when the next price cap is set for April 2025.
This forecasted increase is largely attributed to rising costs associated with operating and maintaining the UK's energy networks. However, these predictions are subject to change as the assessment period for the April cap, which runs from February to May, progresses.
Ofgem is expected to announce the official price cap for April 2025 by February 25, 2026. The regulator calculates the cap by considering several factors, with the largest component being the wholesale cost of energy that suppliers pay. Other costs include network charges, operating costs, VAT, and supplier profit margins.
