Energy price cap to rise: How to protect against future bill increases

From January a typical household will pay £1,928 a year for their energy bills, following an increase in the “price cap”.

This is a rise of £94 over the course of a year – or around £7.83 a month – the energy regulator said – meaning households should brace for higher prices than last winter.

The rise in energy costs was attributed to shocks in the wholesale market caused by events abroad: the war in Gaza has hit production at key Israeli gas fields, reducing output to Egypt where it is processed into liquefied natural gas (LNG) and impacting supply.

Analysts Cornwall Insight said disruptions to the Balticconnector pipeline between Finland and Estonia, and industrial action at gas production facilities in Australia were also affecting prices.

Last year, a government-subsidised discount knocked £400 off every home’s energy bills in the five months between November 2022 and March 2023.

But with this help no longer available and standing charges costing as much as £300 a year, some 7.2 million households face paying more this winter than during the bills crisis last year, according to the Resolution think tank.

Experts have warned bills are unlikely to fall below £1,700 for the rest of the decade.

Here, The Telegraph covers what the energy price cap is, whether it’s time to consider a fixed-term deal, and what you can do now to protect yourself from an energy price rise this winter.

What is the energy price cap?

The price cap limits what energy providers can charge customers on a “standard variable tariff”. It does not apply to fixed-rate deals. Most households are currently on variable deals as providers were unable to offer competitive fixes throughout the energy crisis.

Ofgem’s price cap is determined by wholesale costs and is revised every three months. The price cap rose from a low of £1,042 in February 2020 to £1,971 in April 2022. As Russia’s war in Ukraine intensified, driving up wholesale prices, the cap continued to rise – eventually reaching a peak of £4,279 in January 2023.

This prompted the Government to intervene in September 2022 by introducing the Energy Price Guarantee, a similar cap on energy bills that limited the average household bill to £2,500 a year regardless of the turmoil in the wholesale market.

The guarantee was due to be raised to £3,000 a year in March. However, an unexpected drop in wholesale energy prices allowed the Government to freeze it at £2,500 until June, by which point energy prices were expected to drop.

From July, when the Ofgem-set price cap finally fell below the government-backed EPG, households on variable deals automatically reverted to the former.

It is important to understand the price cap does not limit the amount you will pay over the course of a year. The amount of energy a typical household uses in one year is known as the typical domestic consumption value (TDCV) – and the headline figure of £1,928 is simply how much the TDCV costs under current market rates.

The cap simply fixes the rates at which you are charged for your gas and electricity usage, as well as the standing charges for both.

Standing charges are billed to households at a daily rate regardless of how much energy they use – and these have remained the same as under the previous price cap – equivalent to £5.74 a week, or £300 a year for a house using electricity and gas.

In its previous update to the price cap, Ofgem lowered the TDCV to reflect the fact households were using less energy a year than previously.

Because of this adjustment, the price cap appeared to have fallen significantly from its previous level of £2,074. But in fact, the rates for gas and electricity had only gone down by a few pence per kilowatt hour. (30p to 27.35p for electricity; and 8p to 6.89p for gas).

How much more will I pay when prices go up?

From January 1 to March 31, the unit rate for electricity will rise from 27.35p to 28.62p per kWh. Gas will rise from 6.89p to 7.42p per kWh.

In short, your electrical appliances will cost around 5pc more to run from January than they do now, and your heating (if gas) will cost around 8pc more.

To take an example of how the price cap affects your own usage, an electric kettle of water would have typically cost 6.5p to boil under the July price cap.

The average person drinks 884 cups of tea a year, according to a 2015 YouGov survey, meaning if you were to boil a fresh kettle of water for every cup, that would have cost you £57.65.

Under the current price cap, which lasts from October 1 to December 31, this fell by an estimated 8.3pc to £52.87 – saving you £4.78 a year, although costs can vary slightly depending on the power use of your kettle.

Electric showers will cost 25p for every five minutes, or £1.76 a week, assuming one shower a day – this doubles to £3.52 for 10-minute showers. A family of four doing this would rack up £14.06 a week on showers alone.

Under the January cap, washing machines, tumble dryers and dishwashers will remain expensive. A typical 90-minute cycle on a washing machine will cost 96p – and an hour’s ironing costs 43p on top of that.

A tumble dryer’s 45-minute cycle costs 55p, and a dishwasher will cost between 81p and £1.65 depending on the length of the cycle.

Easy ways to save money on energy bills

Though parts of Britain have enjoyed a relatively mild November, temperatures will likely drop in the New Year, making this an ideal time to sort out your home’s energy efficiency if you haven’t already.

There are some simple things you can do now to stand you in better stead for when temperatures drop.

Get your boiler serviced

Getting your boiler serviced once a year is a good way to make sure it’s running as efficiently as possible. Many people won’t be thinking much about their boilers during the autumn months, but it can be a good time to book a service – some engineers may be less busy, and may even offer “off-peak” prices.

What’s more, if something is found to be wrong with your boiler, you won’t need to worry about bringing in energy-guzzling electric heaters should you need to switch it off for repairs.

Sort your insulation

A quarter of heat is lost through the roof of an uninsulated home, whether you live in a tiny cottage or a sprawling mansion. Installing loft insulation only costs between £400 and £1,200 for the average house and should pay for itself many times over in its 40-year lifetime, something well worth considering while bills remain high.

Should I buy a fixed-tariff deal?

Before the energy crisis, households were used to shopping around for competitive fixed-price deals.

However, the energy crisis upended the market, leaving variable rates governed by the price cap as the only viable option. Fixed rates became so expensive that providers stopped offering them altogether.

However, as wholesale prices have cooled, a number of fixed-rate deals have come on the market after years of being unavailable.

Jonathan Brearley, chief executive of Ofgem, said: “We are also seeing the return of choice to the market, which is a positive sign and customers could benefit from shopping around with a range of tariffs now available offering the security of a fixed rate or a more flexible deal that tracks below the price cap.

“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.”

But MoneySavingExpert’s Martin Lewis said Mr Brearley was “pushing it a bit”.

He added: “There is one tariff, only available for E.On Next customers, that’s below the price cap. There are no standalone cheap fixes that are worth moving to that don’t require you to switch other utilities too.”

Indeed, few of the fixes available offer meaningful savings over the current price cap, according to comparison site USwitch.com.

Those that do come with caveats: Octopus Energy’s Loyal 12-month fix saves a mere £16 a year compared to the average bill under the current price cap – and is only available to existing customers.

E.On Next’s Pledge Tracker 12-month offer is priced £50 below the current cap, and like the cap itself is reviewed every quarter, so if the cap falls, so too will the tariff. This deal is also only available to existing customers.

Utility Warehouse’s Fixed Saver 6, meanwhile, works out as £56 cheaper than the price cap. The catch here is that customers must also sign up for two other services offered by the provider – such as mobile and broadband.

However, such bundles may cost households more than taking out separate deals with other providers.

Proponents of fixed-rate deals argue they offer long-term security, as unlike variable tariffs they cannot change throughout the duration of the deal. This could shield households from shocks in the wholesale market.

However, analysts across the sector predict the cap will rise when it is next adjusted in January, meaning fixing at a rate on par with October’s cap could save you money in the long run. Most agree prices are unlikely to spike as they did when the war in Ukraine began.

Martin Young, energy analyst at Investec, said: “We do not expect a deluge of cut-price deals, holding a view that switching will be driven by customer service and innovative products.

“Uptake will depend on personal preference and exit charges.”

Dr Craig Lowrey, of analysts Cornwall Insight, added: “Those seeking alternative options to bypass the high cap prices through the return of fixed tariffs will need to manage their expectations, as the availability of deals below the cap is still uncertain.

“Even for those able to secure a below-cap rate, it remains a risky decision. There is a possibility that the cap could decrease, leading to consumers locked into higher-than-market prices.”