From April 1st, domestic energy prices will be increasing by 54% for nearly 22 million customers. Driven by a record rise in wholesale gas prices in the last six months on top of wholesale pricing quadrupling in the last year, industry experts do not see the situation calming in the immediate future.
It is expected that dual fuel tariff customers paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year while prepayment customers will see an increase of £708 from £1,309 to £2,017.
Ofgem Chief Executive Jonathan Brearley explains, “The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.”
He continues, “Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”
The price cap was introduced to prevent energy companies from making a steep profit and to ensure consumers paid a fair price for their energy. It is updated twice a year whilst tracking wholesale energy and its associated costs. By definition, it allows companies to pass on what is deemed reasonable costs to customers which includes the cost of buying gas.
One of the measures being proposed to help consumers weather the unpredictability of the market is to allow more frequent price cap reviews, such as quarterly, to establish the true cost of energy at a given time.
The volatility in the market has seen the exit of 29 UK energy companies, with some having been put into special administration. Read more from Ofgem about the breakdown in costs for consumers as well as wholesale price increases here.
