Despite Reduction in Ofgem Price Cap, UK Energy Bills Expected to Increase

Ofgem, the UK’s energy regulator, is expected to announce that it will lower its cap on how much energy suppliers can charge by about GBP1,000. However, analysts predict that prices will still rise by GBP500 on average.

According to the most recent forecast from energy consultancy Cornwall Insight, Ofgem is anticipated to announce that it will reduce its cap on the amount that energy suppliers are allowed to charge by approximately 1,000 pounds to 3,295 pounds on April 1, 2023. This change will take effect.

The maximum price that energy providers can charge customers for each kilowatt hour of energy they use is set by the energy price cap. The amount of energy used by each household determines how much each household pays.

However, because the government’s additional support in the form of the Energy Price Guarantee only partially protects consumers from paying the full price cap, customers will pay approximately GBP500 more on their bills.

Domestic customers are required to pay the government the difference between Ofgem’s price cap and the 34 pounds per kilowatt hour for electricity and 10.3 pounds per kWh for gas, which amounts to 2,500 pounds per year for the average household.

Beginning at the beginning of April, this assistance is expected to become less generous, with an average bill of GBP3,000. The cost of energy for homes will rise even more when the upcoming end of the GBP400 energy rebate program is considered. The rebate is paid in six equal payments of GBP66 and GBP67 per month.

The government has likely been paying approximately GBP1,779 per year to energy suppliers on average for each household they serve between September and March, as Ofgem’s price cap is currently set at GBP4,279 per year.

The government will only pay GBP295 per household per year from April to June due to the predicted fall in the Ofgem price cap to GBP3,295 and rise in the energy price guarantee level to GBP3,000.

According to a report, the price cap is expected to fall further, reaching GBP2,161 in October after reaching GBP2,153 in July. Since this will be significantly lower than the price guarantee, it will result in lower prices for customers and zero government costs. Even these bills are approximately twice as much as the price cap was prior to the energy crisis.

Although projections of a falling cap are positive, it is unfortunate that households that are already stretched thin will not see much improvement until July. Even though prices below the cap are still significantly higher than historical averages, the return of competitive tariffs and the opportunity for customers to regain some control over their energy bills may result from a combination of falling wholesale prices and an increase in the EPG.