How Will the Energy Prices Update Affect You?

In April the energy regulatory body Ofgem are due to lower the energy price cap, yet bills are still set to rise.

The Energy Price Guarantee brought in by the Government to provide support dealing with inflated energy costs is to be reduced also in April.

So while the cap on what energy companies can charge consumers going down, the Energy Price Guarantee that effectively supersedes Ofgem’s price cap while that price is higher than the £2,500, is being increased.

Ofgem’s quarterly cap on household bills would fall by 23% for the three months from 1 April, from £4,279 as it is currently to £3,280 for the next quarter. Due to support from the Government to keep bills affordable including the £400 discount scheme, the average price for typical usage in a household was kept at an estimate of around £2,100 per year.

From April, as the price guarantee is to be reduced and the discount on energy prices withdrawn, the figure for a typical annual bill will rise up to £3,000 – around a 20% increase.

Back in January, The Chancellor of the Exchequer Jeremy Hunt described the scheme currently in place as “unsustainably expensive”.

In short this means that while energy prices are coming down, energy bills will actually be going up for consumers and business alike. The average increase in bills is set to go up 20%.

Chancellor Jeremy Hunt is set to announce the budget on 15th March and has faced calls to postpone the cut.

Money Saving Expert Martin Lewis is among those, stating he “wrote to the Chancellor” requesting he cut the price increases.

As in July the Ofgem price cap is due to drop to £2,100 when it would then be lower than the Government-set Energy Price Guarantee, the price guarantee would become irrelevant and bills would be in line with the price cap rate. Martin Lewis points out how with that being that case:

“It will only likely be in effect for three months. It seems to be an act of national mental health harm to send millions – almost everybody – a letter to say your energy bills are going to go up by 20 per cent again when they’ve already more than doubled just for the sake of three months.”

While the level of the energy price guarantee remains lower than the Ofgem price cap, the Government will pay suppliers the difference in order to cover the cost of buying inflated wholesale energy prices

And although wholesale prices have now fallen significantly in recent months, this drop in price is yet to filter into household bills as suppliers buy their energy months in advance.

Suppliers are obliged to write to customers a month before a price rise, meaning letters are expected to go out this week.

To keep up to date with relevant industry news click here.