At the onset of the new year, millions of UK households will experience a slight increase in energy prices, following the latest price cap update by regulator Ofgem. The cap will rise by 0.2% starting in January, affecting customers on variable tariffs across England, Wales, and Scotland. This comes as a surprise, counter to previous forecasts indicating a potential decrease at the start of the year. Government policies are mainly responsible for this adjustment.
Despite stabilization in wholesale energy costs, they continue to account for the largest portion of energy bills, leading to persistent price volatility, explained Tim Jarvis of Ofgem. The increase is attributed to rising electricity unit rates, although there is a small decrease in gas rates. Consequently, households with higher electricity consumption will feel the most impact. Though prices will be slightly lower compared to the same period last year, Mr. Jarvis suggested that customers should explore fixed tariffs to help manage costs.
Ofgem noted that government policy costs and operating expenditures, such as those related to recent energy projects, are driving the price cap change. The cap determines the maximum per-unit cost of gas and electricity but not the total bill amount. Households consuming more energy will naturally incur higher costs. For instance, a household using a typical amount of gas and electricity will see an annual bill increase from £1,755 to £1,758. Standing charges will rise by 2% for electricity and 3% for gas.
Citizens Advice's Dame Clare Moriarty highlighted the urgency for strategic decisions regarding long-term energy pricing as bills remain significantly high post-crisis, with further increases expected by April.
In response, community initiatives, such as Liz Walker's morning cafe at St Nicholas Church in Kent, provide warmth to locals, minimizing their need to heat homes during winter mornings, thus saving on energy costs. However, charities report rising debt levels among consumers unable to pay surging energy bills, totaling a record £4.4bn. Ofgem plans to work with energy companies to write off up to £500m of this debt early next year.
Energy UK's CEO, Dhara Vyas, urged individuals facing payment challenges to reach out to their suppliers. Companies might offer assistance through efficient appliances or tariff adjustments. Energy consultancy Cornwall Insight previously anticipated a price cap fall but now sees Ofgem's announcement as a potential trend-shifting marker towards higher bills driven by policy costs.