Energy regulator Ofgem today announced that in future the energy price cap will be updated quarterly instead of every six months, as it warned that customers are in for a very difficult winter.
A press release accompanying the announcement stated that “today’s change will go some way to providing the stability needed in the energy market, reducing the risk of further large-scale supplier failures causing huge disruptions and pushing up costs for consumers.” “It is in no one’s interest to see more suppliers fail and exit the market.”
The price cap, which was introduced in 2018, is designed to reflect how much it costs to deliver energy to our homes by setting a maximum that suppliers can charge per unit of energy, and limits the level of profit an energy supplier can make to 1.9% . in order to protect millions of households.
The next price cap will be published at the end of this month and it is expected that due to the instability of supplies from Russia and the rapid increase in global energy prices, this will again lead to a significant increase in the price required for households. pay for your energy.
The danger with quarterly price cap changes is that people feel that energy companies will be quick to raise the cap price when energy prices rise, but will be slower to respond when prices fall, without passing on the full price cuts to consumers. . You only have to look at UK petrol prices in recent months for a prime example of this: petrol retailers have been accused of failing to pass on the full impact of recent fuel price cuts to consumers.
However, Ofgem said in a press release that “while the price cap should rise, it continues to address the risk of rapid price rises for consumers when wholesale prices rise but fall slowly and less when they do. If wholesale prices fall, these discounts will be passed on to customers in full through a lower price cap. This will happen faster with a quarterly price cap.”
That’s all well and good, but will it actually happen?
Of course, when changing the frequency of the price cap, Ofgem must also announce how it will monitor the cap more closely and ensure that when prices are observed, they are fully passed on to consumers and not simply hidden by suppliers. as a means of “increasing” one’s own profits.
Announcing the cap change, Jonathan Brearley, chief executive of Ofgem, said: “I know many people are very concerned about this situation. As a result of Russia’s actions, the volatility in energy markets that we experienced last winter lasted much longer and prices were much higher than ever before. And this means that the cost of electricity and gas in houses has increased significantly.
“The trade-offs we have to make on behalf of consumers are extremely complex and there are simply no easy answers right now. Today’s changes ensure that the price cap does its job, ensuring that customers only pay the real cost of their energy, but also that it can adapt to the current volatile market.”
And make no doubt, the cap changes we’ve already seen are significant and likely to happen in the coming months.
Earlier this year Ofgem said in a statement that the average household should expect to see their bill rise by £800.00 a year to £2,800.00, but the latest indications are that this price will increase significantly when it is announced later this year new month limit. Some analysts predict that by the time the quarterly cap comes into effect next January, it could reach £3,600.00 a year. To put these figures into perspective, in October 2021 the average bill was just £1,400.00 a year.
Note: Price caps apply in England, Scotland and Wales, but not in Northern Ireland.
The energy price limit will be changed to quarterly in the future.
Source link The energy price limit will be changed to quarterly in the future.