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Energy bills to rise for millions

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Written by: Emma Lunn
01/10/2021
The energy price cap increases from £1,138 to £1,277 a year from today, meaning households on default or standard tariffs will pay more for their gas and electricity.

Ofgem announced the rise in prices in August. Since then most major suppliers have raised their standard prices to the maximum allowed, or very close to it. This will add £139 to the average annual energy bill.

At the time the energy price cap announcement was made, wholesale energy costs had risen by more than 50% in six months. But things have got a lot worse since then. The past month has seen wholesale energy prices soar to record highs, rising 250% since January.

The energy cap is the maximum price suppliers can charge customers on a standard or default tariff each year. Standard tariffs are variable, which means energy companies can increase (or decrease) the rate they charge you at any time. The energy price cap sets a limit for the amount a supplier can charge the average household with typical energy use.

Ofgem adjusts the price cap twice a year based on the latest estimated costs of supplying energy. Experts predict that when the price cap is reviewed again, for price changes that will come into force on 1 April 2022, it could increase by up to £300.

There is a separate price cap for households with a prepayment meter. This has risen by £153 from £1,156 to £1,309 from today.

Rising wholesale prices have led to an increasing number of energy companies going bust. Utility Point, People’s EnergyPfP Energy and MoneyPlus Energy, which collectively supplied more than half a million domestic customers, all ceased trading in early September. The past fortnight has seen Avro Energy and Green crash out of the market, followed by Igloo Energy, Enstroga and Symbio Energy.

Under Ofgem’s safety net, when a company ceases trading customers’ energy supply should continue uninterrupted and any outstanding credit balances will be protected. The regulator’s advice is not to switch supplier until a new one has been appointed and you have been contacted by them about your new tariff.

Richard Neudegg, head of regulation at Uswitch.com, said: “The increase that standard variable tariff customers will see on their bills from October only reflects the start of the rise in wholesale energy prices and does not include the full hike that caused the recent crisis.

“There is a retrospective lag to the price cap system which means that people won’t have the current spikes in wholesale costs passed onto them until next April, so we have a ticking time bomb on our hands. The government needs to act quickly to provide better protection for the most vulnerable over the coming months.”

Adam French, Which? consumer rights expert, said: “With so many energy providers going bust and cheap deals disappearing in droves from price comparison sites over the past couple of months, many people will be confused and concerned about their energy bills as the price cap hits a record high and winter approaches.

“Although it may be too late to switch before the price cap rises, it’s still worth shopping around to see how your current tariff compares. If you’re looking for price security, then a pricier fixed tariff may still be worth considering to guard against future increases.

“If you are concerned about struggling to pay higher bills, there is help available. Speak to your energy provider about a payment plan you can afford and check to see if you qualify for any government schemes, such as the Warm Home Discount or Cold Weather Payment.”

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