The change to the price cap – which sets a maximum rate per unit and standing charge that can be billed to customers for their energy use – will add about £1.75 per month to the typical household bill.
The current energy price cap, which is in place until 31 December 2024, is £1,717 per year.
The January increase is slightly more than predicted by Cornwall Insight earlier this week. Analysts at the firm predicted the cap would rise to £1,736 per year.
However, the price cap will be 10% (£190) cheaper compared to January to March 2024 (£1,928) and 57.2% (£2,321) less than during the energy crisis (January to March 2023).
More households switching
The price cap announcement comes as analysis by Ofgem shows around one-and-a-half million households switched tariff over the past three months. The regulator is urging customers to take advantage of the rising choice in the market and look for the best deal to help keep their household bills down.
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The energy price cap sets the maximum rates suppliers can charge to customers on variable or default tariffs – and most firms charge the maximum allowed on these tariffs. But by switching to a fixed tariff, savings of up to £140 are currently available.
What is the best tariff for you?
Following a call by Ofgem in August for suppliers to offer more choice with low- and no-standing-charge tariffs, there has been an increase in the number of suppliers offering these kinds of deals. There are currently eight available that are at least 10% below the level set in the price cap.
However, while these come with a lower standing charge, they have higher unit rates. They could benefit customers with lower energy usage but will not work for everyone, so consumers should carefully consider what works for them.
Tim Jarvis, director general of markets at Ofgem, said: “While today’s change means the cap has remained relatively stable, we understand that the cost of energy remains a challenge for too many households. However, with more tariffs coming into the market, there are ways for customers to bring their bill down, so please shop around and look at all the options.
“Our reliance on volatile international markets – which are affected by factors such as events in Russia and the Middle East – means the cost of energy will continue to fluctuate. So it’s more important than ever to stay focused on building a renewable, home-grown energy system to bring costs down and give households stability.
“In the short term, though, anyone struggling with bills should speak to their supplier to make sure they’re getting the help they need and look around to make sure they’re on the best, most affordable deal for them.”
How do you pay your bill?
The regulator is encouraging customers to consider the way they pay their bills. Around five million customers pay by standard credit payments – which means paying for energy after it has been used. But this is much more expensive, particularly during winter.
Ofgem said customers could save £100 by simply switching from standard credit payments to direct debit payments or a smart prepayment meter.
Households face ‘double whammy’
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “Many households are already facing financial pressures from the double whammy of higher energy bills, following the 10% hike in the energy price cap in October, and increased usage. The latest price cap rise and the possibility of continued cold weather in the new year could exacerbate matters, resulting in higher bills when people can least afford them, following the festive bumper spending period.
“Energy bill rises are a particularly sticky element of inflation for households due to their inescapable nature. Unlike discretionary spending, energy costs are essential and unavoidable, meaning households must budget to cover these expenses regardless of price increases.”
