Energy bills are rising – and what you can do about it

Blog
Jonathan Brearley Ofgem Chief Executive

Jonathan Brearley

Ofgem Chief Executive

Dyddiad cyhoeddi

Sector diwydiant

Supply and Retail Market
Couple reading bill

I know that the last 18 months have been tough for many households as a result of the COVID-19 crisis. Rising inflation and the forthcoming end of the furlough scheme on top of the impact that the pandemic has had on people’s livelihoods means that family finances are tight now.

Unfortunately, against this backdrop I am today alerting customers that global prices for fossil fuels, especially gas, are increasing at an unprecedented rate. Ultimately this will feed into all customer energy bills in the UK.

One of the most important tools we have to ensure that customers pay a fair price for their energy, and no more, is the price cap. This caps the price that companies can charge customers who have not recently changed their tariff or energy supplier and allows them only to charge legitimate costs.

Regrettably, the increase in wholesale costs will feed through to this price cap and, although final analysis is not complete and other costs will also determine the overall level, it could add around £150 per household to the next level of the price cap.  

We will announce the update on 6 August, but I want to alert customers earlier than this so they can take action to switch supplier, change their tariff and access the help and support they need.

The increase, which comes into effect on 1 October, will affect around 15 million households on variable or default rates and prepayment meters – half the population – who are covered by the cap.

This is difficult news for all households. Therefore, my message to energy companies is clear – you need to provide all available help and support to customers who are struggling as a result of this price change.

Ofgem has put strict rules in place to ensure that energy companies treat customers fairly – we expect them to be adhered to and will take the necessary enforcement action to ensure they do. We are also working collaboratively with the industry on a package of further help for those in difficulty this winter.

Paying a fair price

Every February and August, Ofgem announces the new level of the price cap based on the latest estimated costs of supplying energy. This sets the maximum price suppliers can charge their customers on their default tariff.

The biggest and most unpredictable cost is the market or wholesale cost of electricity and gas which suppliers pay. This accounts for about 40% of the price cap.

To be as transparent as possible about the movement of wholesale energy costs and their impact on the price cap, we have launched two new price trend charts on the Ofgem Data Portal on our website, which we will update every month:

When wholesale energy prices fell last summer following the first lockdown, Ofgem reduced the level of the cap by £84 for last winter.

However, when legitimate costs of supplying energy increase, this also needs to be reflected in the price cap.

Without this, companies would be unable to continue to supply energy to their customers and fulfil their wider obligations.

Since we last updated the level of the cap in February, the wholesale electricity and gas prices it tracks have increased by over 50%.

Rising gas prices increases the cost of heating homes and also pushes up electricity prices.

However, we will continue to do our job, and ensure that no more than a fair price is paid for energy.

Support is available

I understand this is a time when some households and businesses are struggling financially. Ofgem is doing everything within our power to protect customers, especially those who need it most.

Ofgem has put in place a strong safety net to support consumers struggling to pay their bills. If you or your family are in vulnerable circumstances or in debt, there is help available for you and I would urge you to contact your supplier to access it.

If you are on a pre-payment meter, protections include being able to ask your energy supplier for emergency credit.

If you are struggling to pay your bill, contact your energy supplier to explain what you can pay and when – they are bound by our rules to listen, consider your ability to pay and to act to support you fairly.

Low income households, especially pensioners, can get a £140 rebate off their energy bill under the Warm Home Discount.  

What’s more, while the price cap limits the amount suppliers can charge customers on their default tariff, most suppliers offer tariffs cheaper than this.

While the price of these fixed contract deals is also increasing on the back of higher wholesale energy prices, if you shop around you may well still be able to save hundreds of pounds on your energy bill. Our switching guide explains how.

Be aware that price comparison websites will not factor in the higher default tariff rates until the new price cap level comes into effect on 1 October. So if you compare deals before then, you should be able to save even more than advertised.

Remember also that switching to a one or two-year fixed deal gives you greater peace of mind because it provides some protection from volatile global fossil fuel prices.

Equally, if you don’t want to switch supplier or you are unable to, contact your supplier who should be able to put you on a better deal and make sure you have access to all the support you are entitled to.

If you choose not to switch and remain on a default deal, the price cap will still save you between £75-£100 a year by ensuring you pay only pay a fair price. It has prevented and will continue to prevent suppliers from charging more than their legitimate costs. 

I know this will be tough news for many families, but you can be sure of my determination that Ofgem will do everything we can to ensure that customers are protected this winter, especially those who need it most.