Millions of households will see their energy bills rise this summer after Ofgem announced its new price cap. The price cap is increasing by 13% for the typical dual fuel household that pays by direct debit from July.
Why are energy bills rising?
The increase had been widely expected due to the war in Iran, which has pushed up global energy prices following the closure of the Strait of Hormuz. Around a fifth of the world's oil and liquefied natural gas (LNG) usually passes through this crucial waterway.
Ofgem updates its price cap every three months, so the new rates will remain in place until September 30, when it will then be revised again.
What is the Ofgem price cap?
Despite what its name suggests, the Ofgem price cap does not put a limit on how much you can pay for energy. Instead, it sets the maximum unit rates and standing charges. The standing charge is a fixed fee you pay to be connected to the grid. This means your bill is still based on the amount of energy you use, and it can be higher or lower than the headline price cap figure.
The price cap figure represents what the typical billpayer can expect to pay, based on how much energy Ofgem estimates that the average household uses. Your location can also affect your bill, as unit rates vary depending on region. There are also different rates for prepayment customers and those who pay on receipt of bill.
Confusingly, the energy price cap figure represents a yearly bill, but it is updated every three months so Ofgem can reflect changing wholesale costs.
Who is covered by the Ofgem price cap?
The Ofgem price cap covers anyone on a standard variable rate (SVR) tariff. You are likely on an SVR tariff if you are not fixed into an energy deal. There are about 33 million standard variable tariff customer accounts, including six million with prepayment meters. You can contact your current energy supplier to see what type of tariff you are on.
But unusually, the savings announced today will also apply to fixed rate tariffs due to the change in policy costs. If you are a fixed rate customer, you do not need to do anything - your energy supplier will be in touch to outline the changes to your tariff.
