Ofgem announces energy cap increase. But what does it mean?

by Ian Sinkamba Domestic Energy News

Ofgem announces energy cap increase. But what does it mean?

As energy regulator Ofgem announces an increase in the energy price cap, we ask, what do the latest changes mean for your household and how can you be sure that you are making the best of your energy deal?

On the 1st January as many people were nursing sore heads from their New Year’s celebrations, the government’s new energy price cap came into force, implemented by Ofgem – the energy regulator. The cap was introduced to help customers avoid unreasonable tariff increases simply because they had elected to stay with the same provider.

The cap was a response to findings by the Competition and Markets Authority (CMA) that the public were paying £1.4 billion a year more than they should on energy costs because they weren’t shopping around for the best deal.

In many cases it was found that bill payers who were loyal to a single provider or simply forgot to compare providers were paying around £300 a year more than necessary – often because they were being moved onto a standard variable rate.

In response to the CMA’s findings, the government called for Ofgem to set a cap in England, Wales and Scotland based on the unit price of energy for electricity and gas, alongside a maximum standing charge.

So, why is the energy cap changing after just a few weeks? Since the 1st January the wholesale price of oil has increased globally. This means that the costs faced by energy suppliers has increased. Ofgem’s chief executive, Dermot Nolan explained:

“We can assure these customers that they remain protected from being overcharged for their energy and that these increases are only due to actual rises in energy costs, rather than excess charges from supplier profiteering.”

Ofgem has also indicated that the energy cap may yet come down if the wholesale price of oil decreases over the coming months and years. As the cap is reviewed every 6 months, some forecasts are already suggesting that the cap could be lowered by October.

What does it mean for the average household? Estimates suggest that more than half of British households will now see an increase in the cost of energy from April onwards. The worst affected are likely to be the 11 million households on default or standard variable tariffs, where the average cost by direct debit may increase to around £1,254 per year.

How can you help to avoid a bill increase? The best advice is still to shop around for the best tariff and ensure that you are finding the best deal on the market. Alongside this, it is also important to bear in mind that reducing your energy consumption can also have a significant impact on your gas and electricity bills – particularly for those with a smart meter.

How do I find the best tariff? Our online price comparison tool enables you to check every tariff from every energy supplier in one place. Just check your most recent bill and enter either your monthly costs or annual usage readings (in kWh).

See what you can save, compare today!

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