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What is the energy price cap and how much are bills going up? What is the Ofgem energy price cap and how much are bills going down?
(about 1 month later)
Household energy prices went up from January, with the typical annual household bill rising to £1,928, according to the regulator Ofgem. Energy bills will fall by more than 12% for most people in England, Scotland and Wales from April.
A new price cap has been announced by energy regulator Ofgem, which sets the maximum price suppliers can charge households for each unit of gas and electricity they use.
What is the energy price cap?What is the energy price cap?
In recent years the cost of variable tariff energy deals in England, Wales and Scotland has been controlled by the energy price cap, which is now set every three months. The energy price cap is set every three months and covers 29 million households in England, Wales and Scotland.
The cap confirms the maximum price suppliers can charge households per unit of energy on a standard - or default - tariff in normal circumstances. It covers 29 million households. It fixes the maximum price that can be charged for each unit of energy on a standard - or default - tariff for a typical dual-fuel household which pays by direct debit.
Energy prices soared after Russia's invasion of Ukraine in February 2022, so in October ministers said household bills would be limited by a temporary government guarantee instead. Gas prices will be capped at 6p per kilowatt hour (kWh), and electricity at 24p per kWh. Currently, gas is 7.42p per kWh and electricity 28.62p per kWh.
Under this, a typical household's annual gas and electricity bill stayed below £2,500 despite Ofgem's cap increasing above this level during the period. When prices soared after Russia invaded Ukraine in 2022, the government introduced a temporary Energy Price Guarantee to limit bills. However, Ofgem is again responsible for deciding how much customers can be charged.
The Energy Price Guarantee finished in June 2023, and the Ofgem cap once again became responsible for deciding how much customers can be charged. The cap does not apply in Northern Ireland, which has its own energy market. Prices are also falling there.
From January, the new price cap meant the typical annual household bill went up to £1,928from £1,834, a rise of £94 or 5%. How much is my bill likely to go down?
Standing charges - a fixed daily charge covering the costs of connecting to a supply - have remained unchanged at 53p a day for electricity and 30p a day for gas. Ofgem says that, from April, an average household paying by direct debit for dual fuel will pay £1,690 a year, a drop of £238 from the previous cap.
Energy is regulated separately in Northern Ireland, where bills are slightly lower. Should I fix my energy prices?
The fall in energy prices has raised hopes that suppliers will offer cheaper, fixed-price deals.
These offer certainty for a set period, but if prices drop further people can find themselves stuck at the higher price.
Analysts at Cornwall Insight predict the price cap will see a small fall in July, but increase slightly in October.
When considering a fixed-price deal, Ofgem says people should seek independent advice and "consider what is most important for them, whether that's the lowest price or the security of a fixed deal".
Price comparison website Uswitch says it expects "increased competition" from suppliers, but warns that people should check for exit fees they might have to pay if leaving a fixed deal early.
What are standing charges?
Although the overall cap has fallen, standing charges - a fixed daily amount which covers the costs of connecting to a supply - have increased.
Standing charges will be 60p a day for electricity and 31p a day for gas, although they vary by region.
The regulator will also add £28 to everyone's bill over a year to cover the cost of dealing with £3.1bn of debt that customers owe to suppliers.
What is a typical household?What is a typical household?
The calculations for a typical household are based on a direct debit dual fuel customer using 11,500 kWh (kilowatt hours) of gas and 2,700 kWh of electricity a year. How much you pay for energy depends on the overall amount of gas and electricity you use.
A kilowatt hour is a unit of energy used to calculate your bill. But the type of property you live in, how energy efficient it is, and how many people live there, also affect your bill.
However, most households aren't typical. The Ofgem cap is based on a "typical household" using 11,500 kWh of gas and 2,700 kWh of electricity a year and paying by direct debit.
Bills are based on how much energy you actually use, which depends on the number of people, the type of property and its energy efficiency. The vast majority of people pay their bill this way, to help spread payments across the year.
Energy prices: How much will you pay from January? Those who pay every three months by cash and cheque are charged more. Their typical annual bill from April will be £1,796, which is £106 more a year than that of a direct debit customer.
Five tips for cutting energy costs this winter What is happening to prepayment customers?
Should I fix my energy prices now? Households on prepayment meters will now pay the same as those on direct debit. Previously they were charged more.
The vast majority of people pay for their energy by direct debit, with payments smoothed out across the colder and warmer months of the year. About four million households had prepayment meters in July 2023, according to Ofgem.
Analysts expect that energy prices will fall back when the energy cap is next reviewed in March, but billpayers may wish to consider taking advantage of the greater range of fixed deals which are on the market. Many have been in place for years, but some meters were installed more recently after customers struggled to pay their bills.
However, Ofgem urges caution. "People should weigh up all the information, seek independent advice from trusted sources and consider what is most important for them, whether that's the lowest price or the security of a fixed deal," says chief executive Jonathan Brearley. New rules mean suppliers must give customers more opportunity to clear their debts, and they cannot be installed at all in certain households.
What if I'm on on a prepayment meter? What support is available for energy bills?
In July 2023, Ofgem said around four million households had prepayment meters. Many have been in place for years, but some billpayers have been switched to prepayment meters more recently after struggling to pay their bills. Certain groups - such as pensioners and those on some means-tested or disability benefits - received extra cost-of-living payments when bills soared.
Ofgem reviewed their use after an investigation by The Times found debt agents acting for British Gas wrongly broke into vulnerable people's homes to forcibly fit meters. But much of that extra support has now finished.
Under new rules, suppliers must give customers more opportunity to clear their debts before installing a meter - contacting them at least 10 times - and they cannot be installed at all in certain households. The £500m Household Support Fund which the government introduced to help with costs in September 2021 will end in March 2024.
Firms must offer affordable payment plans or repayment holidays, if appropriate. However, the Warm Home Discount scheme will continue to offer a discount to eligible pensioners and low income households.
The government has promised to bring prepayment energy charges in line with those for direct debit customers. The government's Fuel Direct Scheme can help you repay a debt from your benefit payments.
From January, households using prepayment meters saw their typical annual energy bill rise to £1,960, up from £1,949, and still £32 more than direct debit customers will pay. In addition, energy suppliers must offer customers affordable payment plans or repayment holidays if they are struggling to pay bills.
Those who pay every three months by cash and cheque also pay more than those who use other methods of payment. Most suppliers also offer hardship grants.
Their typical annual bill in January is £2,058, £130 more a year than if they paid by direct debit.
What extra support is available for energy bills?
Some groups across the UK who may struggle to pay bills are receiving additional help through cost-of-living payments:
£900 to households on means-tested benefits - paid in three instalments in spring and autumn 2023 and spring 2024
£300 for pensioner households
£150 to people on certain disability benefits
Vulnerable families can also claim help through the Household Support Fund, and - from October 2023 - the Warm Home Discount scheme.
Importantly, the £400 discount which all households in England, Wales and Scotland received last winter does not apply this year.
What can I do if I can't pay my energy bill?What can I do if I can't pay my energy bill?
Ofgem: Help with billsOfgem: Help with bills
What help are businesses getting?What help are businesses getting?
Until the end of March 2023, businesses had their costs limited under the government's Energy Bill Relief Scheme. The energy support scheme for businesses, which offered firms a discount on wholesale prices, will end in March 2024.
Under a new scheme running until March 2024, firms get a discount on wholesale prices, rather than costs being capped. The scheme offered a larger discount to heavy energy-using sectors, like glass, ceramics and steelmakers.
Heavy energy-using sectors, like glass, ceramics and steelmakers, will get a larger discount than others.
Rising bills mean chip shop is not viable - ownerRising bills mean chip shop is not viable - owner
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