Are UK Energy Prices Still Going Up?
With prices still rising and the energy cap review fast approaching, lots of home energy customers are wondering whether electricity and gas prices are still going up.
It's no secret there's an ongoing energy crisis. With many people seeing home energy bills sharply increase throughout 2021 and into 2022, it is not welcome news that the energy cap; that has offered some protection against surging energy prices, increased again on April 1 2022.
The current energy price of £1,971 is set to run for the period of 1st April 2022 to 31st September 2022.
There has been lots of uncertainty and even confusion about what to do when your fixed deal comes to an end since we wrote our 2021 update, but now 2022 has seen an increase of 54%; this is an extra £693 to the average annual energy bill.
The UK energy price cap increased by 54% in April 2022.
The price cap only limits the amount you can be charged per unit of gas and electricity. It has caused some confusion as there's actually no limit to the amount you can be charged for home energy – as the more you use, the more you will spend.
For years it has been well-known that fixed energy deals are much cheaper than variable alternatives. This sudden change with surging wholesale energy costs meaning that the default tariff price cap had energy suppliers selling gas and electricity at a loss. So, energy suppliers are charging profitable tariffs at considerably higher prices through fixed deals. The issue is nobody is buying them.
Ofgem, the energy regulator, evaluates the wholesale prices every six months and adjusts the price cap accordingly. As the energy price cap is based on these prices, it is easy to predict upcoming price increases.
From October 2022, the UK energy price cap is expected to increase by around £800.
Energy regulator Ofgem stated that the energy price cap could be set at around £2,800 per year from October.
The price cap is adjusted every six months and applies to customers on standard variable (or default) energy tariffs. You can be on a default tariff whether you pay via direct debit, standard credit, or use a prepayment meter.
The answer is a complicated one. For some, maybe. If you have recently been moved onto a variable tariff you have seen some protection from the energy price cap, albeit still expensive compared to your old fixed-price deal.
The energy price cap has protected households from the surging energy market in 2021, but the energy price cap increases in 2022 has raised some doubts.
It may be wise to switch your home energy if the tariff offered is lower than the expected price cap increase. Fixing around this rate means you will likely be paying cheaper rates than the energy cap increase in October 2022.
You should also consider switching if you do not like the uncertainty around what you could be paying each month. A nightmare for household budgeting could cause a lot of stress when wholesale energy prices are consistently surging.
The energy market has changed and finding a cheaper energy deal than the one you're currently on is no longer an option for anyone. The mentality of the market has changed from save money in comparison to your previous energy tariff to save money in comparison to Ofgem's energy price cap.
On average fixed-rate deals are more expensive than the current price cap. If you're looking for a new energy tariff it is about finding that sweet spot before the next price cap increase. If you cannot find a deal cheaper than the expected price cap deal, you may be better staying on a default tariff.
It is important to note that the cap won’t limit your total bill. The price cap ensures a household using an average amount of energy won’t pay more than the cap each year.
So, if you use more energy than the average household, you could still pay more than the price cap amount each year.
If you’re on a fixed rate tariff, the energy price cap won’t apply to you. This is because fixed rate tariffs will often offer better rates than the energy price cap.
Your gas and electricity rates will still be affected by:
The energy regulator Ofgem takes several factors into account when setting the energy price cap including:
If wholesale energy costs increase, this is likely to see an increase in the energy price cap.
Households do not need to apply for the energy price cap. Your energy provider is obligated to inform you if your tariff changes because of the price cap.
If you’re currently on a standard variable or default tariff, you will automatically be protected by the energy price cap.