Ofgem Raises Price Cap by £117^

Ofgem, the energy regulator in the UK, has raised the energy price cap, effective 1 April. The rise will see households paying an extra £117^ a year.

Ofgem Raises Price Cap by £117^

Ofgem, the energy regulator in the UK, has raised the energy price cap, effective 1 April. The rise will see households paying an extra £117^ a year.

A default tariff will increase on average by £117^ to £1,254 per year, from 1 April (from £1,137). A pre-payment meter tariff will increase £106 to £1,242 per year up from £1,136, for the same period. The default tariff price cap affects around 11 million households on default tariffs, including standard variable tariffs.

This increase was predicted by energyhelpline, which we outlined in an article here.

It is now widely expected that there will be a flurry of price rises from several suppliers, especially the Big Six, to the £1254 price cap level, or near it.

Ofgem has stated that capped prices are only to increase when the underlying cost of energy increases. One of the main reasons cited for this rise in the price cap is increased wholesale costs.

Wholesale prices have increased 17% in just the time since the price cap was announced (6th November 2018). Wholesale energy costs make up 36% of a typical energy bill – the biggest portion.

Other costs, including network costs for transporting electricity and gas to homes and costs associated with environmental and social schemes, have also risen and contributed to the increase in the level of the caps.

It is also feared that we may see further supplier collapses if wholesale prices continue on an upward trend.

Ofgem themselves said that consumers can on average save money by switching suppliers.

The average switcher will save £300 above and beyond the price cap. Nearly half the UK has now switched their energy bills.

Victoria Arrington, Spokesperson for energyhelpline says, "There are some great highly rated suppliers out there, including many newcomers, renewable energy, and several other choices.

It only takes a few minutes to switch, and you could save much more in comparison to the price cap".

 

Levy / cost

How much of an average dual fuel bill does it take up?

Wholesale costs

36.2% or £411.59

(TO BECOME £511)

Network costs

25.4% or £288.798

Environmental and social obligation costs

9.7% or £110.29

Operating costs

18.2% or £206.93

VAT

4.8% or £53.576

Supplier pre-tax margin

4.4% or £50.03

Other direct costs

1.2% or £13.64

 

*Ofgem say that they used the wholesale prices of the Feb-July 2018 period for their initial Price Cap value, and will be using Aug 18 – Jan 19 period to determine the next value. I’ve estimated that wholesale prices (for an average usage household) will go up from £373 to £471 in that time, which is a 26% increase. The wholesale component of Ofgem’s Price Cap is £447, so if that increases by 26% that would lead to a £118 increase, from £1,137 to £1,255.

^Averages are calculated for a typical usage home taking gas and electricity and paying by monthly direct debit. Usage for a typical home as per OFGEM guidelines: Gas 12,000 kWh pa and Electricity 3,100 kWh pa.

 

 

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