Is It Time To Fix Your Energy? 5% Increase Coming In January 2024
Industry regulator, Ofgem has announced a 5% increase in the price cap for January 2024. This is the maximum amount energy suppliers can charge for their gas and electricity usage.
This means that a typical UK household will pay £1,928 for their energy annually. This price cap will be in place until March 2024 and will be reviewed again. From September to December 2023, the cap was set at £1,834 and has increased to £94 for a typical UK household. Remember that the price cap is set on unit prices, meaning that if you use more, you pay more.
There's no certainty around energy prices and until Ofgem makes their next announcement in 2024, prices could increase further or come down a little. For those seeking security around the price they pay, they are choosing to get a fixed-rate deal now.
So, what does this mean for the switching market for home and business energy?
Is it time to grab a fixed-rate deal?
What Does This Mean For Energy Switching?
Energy switching is well and truly back. There are deals for business energy and some great options for households too. It is arguably one of the best times in recent years to grab a fixed-rate deal, but each circumstance is different. Either way, there’s no harm comparing energy tariffs now in case you can get a better deal than you’re currently on.
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Why Are Energy Prices Increasing In 2024?
According to analysts at Cornwall Insights, this isn't unexpected and is a direct result of increasing wholesale energy prices. Dr Craig Lowry at the group has highlighted that we cannot assume that prices will continue to fall, and it is very possible that higher prices are becoming the new “normal”.
Interested in finding out what you could be paying? Take a look at our live online prices to see if we can help you grab a better deal.
What Does This Mean For Business Energy?
Prices are really competitive for business energy customers. Many business owners are securing great business energy rates and locking in a great deal to avoid any future price fluctuation.
What Is The Energy Price Cap?
The price cap is managed by the energy regulator Ofgem to ensure that suppliers charge fairly in accordance with wholesale costs. The price cap is on the unit rate per kWh used and your bill will be based on how much gas & electricity you use.
Remember this is the maximum you should be paying - you can compare energy deals to see if you can get an even cheaper unit rate.
| Energy Price Cap From July 2023 | Current Energy Price Guarantee | |
|---|---|---|
| Electricity | 30.11p (kWh) | 33.21p (kWh) |
| Gas | 7.51p (kWh) | 10.31p (kWh) |
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How Does Ofgem Calculate The Price Cap?
As this is basically putting a cap on energy supplier profits, calculating the price cap has a variety of factors that must be considered. Ofgem has released some information on how they set the price cap:
- Wholesale energy costs - the baseline consideration is how much the supplier pays for the energy it later provides UK households
- Network upkeep costs - the costs relating to the maintenance of energy buildings and maintaining the network that delivers the energy to each home. This includes any operating costs
- Government policies - any government schemes are considered when applying the price cap
- 5% VAT is added
What Is The Energy Price Guarantee?
This is a scheme introduced by the government on energy prices from October 2022 through June 2023. The guarantee sets the maximum UK households pay for their energy regardless of wholesale costs.
Can I Switch Energy Suppliers In 2023?
Energy suppliers have started offering fixed-rate deals. This means you might be able to lock in a great deal before the winter months.
Ofgem's Energy Price Cap History
From the day it was first set in January 2019, it’s fair to say the energy price cap has seen its fair amount of fluctuation. Let’s look at each time the cap was set over the last few years.
When Was The Energy Price Cap Introduced?
The first price cap for default energy tariffs, or standard variable tariffs (SVTs) as they’re often referred to, was established on 1 January 2019 by Ofgem - the Office of Gas and Electricity Markets.
Since 1 April 2017, there has also been a price cap protecting customers on prepayment meter tariffs, which covers around 4 million energy consumers.
Why Was The Price Cap Introduced?
The aim of establishing the default tariff price cap was to provide protection to some 11 million energy customers across the UK, ensuring they paid a fair price for the energy they used to power their homes.
The price cap is set so energy suppliers can’t charge their customers whatever they want per kWh of energy they use, while also reflecting on the wholesale energy market so suppliers aren’t buying energy at a more expensive rate than they’re selling at.
How Often Does The Energy Price Cap Change?
Ofgem reviews the energy price cap every three months. This has changed due to fluctuating energy prices as they only used to review it twice a year.
Deep Dive Into The Price Cap History
January 2019
When the price cap was first established suppliers could set the rate of their standard variable tariffs as they wished. The average annual price of an SVT was set to £1,137, which worked out at £94.75 on average per month. However, this was then adjusted in February 2019 to £1,254 - a monthly SVT average of £104.50.
August 2019
The next price cap announcement saw the annual SVT average drop to £1,179 with a monthly average cost of £98.25.
February 2020
It dropped again in February 2020 to £1,162 and a monthly average of £96.83.
Ofgem changes average usage
Between the February and August price cap announcements, Ofgem changed how they calculated the price cap by lowering the household average energy usage of electricity to 2,900kWh from 3,100kWh.
August 2020
Due to wholesale energy prices plummeting from lack of demand during the first Covid-19 lockdown, the price cap dropped to its lowest-ever recorded price of £1,042 with a monthly average of £86.83.
February 2021
As the lockdown began to ease and people started to venture out, wholesale energy prices started to climb, which caused the price cap announcement of February 2021 to increase by £96 to £1,138 and a monthly average of £94.83.
August 2021
With wholesale prices still climbing, the price cap rose again to £1,277 with a monthly SVT average of £139 - the highest price cap to date.
April 2022
Wholesale energy prices continued to surge to £1,971 with a monthly average cost of £164,25.
October 2022
Wholesale prices continued to rise further to a staggering £3,549, averaging a monthly cost of £295.75. The government introduced the Energy Price Guarantee to bridge the gap of rapidly increasing energy costs. This was set at £2,500 per year for typical household usage.
April 2023
The Energy Price Guarantee was scheduled to end. This was extended until July 2023. It was extended as predictions had the price cap increasing hitting £3,280 for typical households.
July 2023
Energy switching coming back? Yes! Ofgem announces the price cap drops to £2,074 and becomes active once again under the temporary price guarantee.
October 2023
Ofgem lowers the price cap drops to £1,923.
