Energy Price Cap 2022: What is it and how will it affect me?

by | Feb 8, 2022 | Articles, Bills, Electricity & Gas, News | 0 comments

Related:
Read about the energy crisis here
See the list of failed energy firms here
  1. What is the Energy Price Cap?
  2. Why are my bills increasing?
  3. Will the new price cap affect me?
  4. Are there any deals available now?
  5. Be first to know when tariffs roll-out
  6. Moving soon? We are here to help

The energy regulator Ofgem will increase the energy price cap by 54% starting 1 April for 22 million households. For an average household, gas and electricity bills will jump to £1,971 per year.

The government will give an upfront £200 to all domestic energy customers from October. This £200 will be automatically taken off from your bill, or credited into your account if you are a pre-payment customer. However this will have to be repaid in annual instalments of £40 over 5 years starting from 2023.

Apart from supporting homes with energy bills, the government is also slashing £150 off council tax for about 80% of UK households. A rebate will be automatically applied to all residential properties in England within council tax band A to D. 

 

What is the Energy Price Cap? 

Ofgem’s Energy Price Cap  – the maximum amount a supplier is allowed to charge an “average user”. Its purpose is to protect consumers from expensive tariffs. The cap is reviewed twice yearly in August and February with any changes in the cap effective two months after the announcement.

Bar graph showing the Ofgem energy price cap since January 2019

Ofgem energy price cap since January 2019 (Source: Energy helpline)

 

In the last review in October, Ofgem raised the cap by 12% to £1,277. However, due to ongoing pressure in the wholesale market for electricity and gas – it has continuously risen to record levels. 

 

Why is the price cap increasing my bills?

Due to supply shortages in the wholesale market, gas prices skyrocketed 250% and many energy suppliers struggled to keep their heads above water. At the beginning of 2021, there were about 70 companies supplying energy to the UK. Since then, more than 30 ceased trading or entered special administration, affecting over 2 million customers across the UK. This includes Bulb, Avro, Green, People’s energy, Utility point, Pure planet, and many smaller companies.

 

List of logos of energy firms that went bust in 2021 due to the energy crisis, including Ampower, Avro, Bluegreen, Bulb, CNG, Colorado energy, Daligas, Enstroga, Entice energy, Goto energy, Green, Green network energy, Igloo, MA Energy, Money plus energy, Neon reef energy, Omni energy, Orbit energy, Hub energy, People's energy company, PFP energy, Pure planet, Simplicity, Social energy, Symbio energy, Together energy, Utility point, Zog energy, Zebra power

List of energy firms that went bust in 2021(Source: Ofgem)

 

In order to help remaining energy firms stay afloat, the price cap is regulated to “balance” the cost of wholesale energy. As the price cap continues to rise in parallel with fixed deal offers, it no longer serves as the safety net for consumers, but instead the best deal available.

 

Line graph showing the difference between price cap and cheapest available tariffs over the years

Line graph showing the difference between price cap and cheapest available tariffs over the years (Source: Cornwall Insight)

 

The gap between the cheapest variable energy deals available on the market and the energy price cap has shrunk dramatically over the past year from £171 to now £2 (as of. 27 January).

 

Will the price cap change affect me?

The UK relies heavily on gas for electricity production. This increase in price cap will likely affect over 22 million homes that are currently on standard tariffs, including the 2.3 million customers whose suppliers went bust in the past year.

If you are currently on a standard tariff, or your fixed energy plan is coming to an end, you are likely to be affected. It might be a good time to start looking into fixing a reasonable package when you can.

You won’t be affected if you are on a fixed-term tariff, in which case your rate will stay unchanged until your plan is due for renewal.

 

Are there any deals available now?

The fixed plans available at the minute are not very competitive. You are probably better off staying with the price cap until better tariffs become available.

 

Be the first to know when tariffs roll-out

If you already have an account with Please Connect Me, we will notify you by email when your plans are due for renewal. When new tariffs are rolled out, you will have instant access to the best options available on the market. To see when your utility plans are due for renewal, you can log into your Please Connect Me account here.

 

 

4. Moving soon? We’re here to help

We can set up all your utilities, including energy, broadband, TV, mobile, council tax and water. Our services are completely free, and through our comprehensive network of suppliers, you can access the best deals available on the market. Sign up for free today with your new address here.

 

We understand this is a very confusing and stressful situation. We are doing our very best to help simplify the process and make sure all our customers are on the best prices the second they become available. If you have any other queries or would like some general advice on utilities, call us at 0800 368 8551 to speak to one of our friendly Connections Experts.

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