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Evening Standard
Evening Standard
World
Bill McLoughlin and Daniel Keane

Ofgem price cap 2022: What is the energy price cap and why are bills going up?

The energy price cap is set to soar by £829 from October - dealing another cost of living blow to households already hit by inflation, an increase to national insurance payment and rising council tax rates.

The rise will mean the price cap will approach near to £2,800.

Chancellor Rishi Sunak on May 26 announced assistance for the public, in the form of £400 non-repayable grants which will be paid out from October.

So what is the energy price cap, and what is the government doing to help with price rises?

When is the next Ofgem announcement?

Ofgem will announce the next price cap rise in August this year.

During a select committee appearance on May 24, chief executive of the energy regulator, Jonathan Brearley, said the price cap is expected to rise from £1,971 to £2,800 in the autumn.

What is the energy price cap?

The price cap was introduced on January 1, 2019 by Ofgem to provide protection to customers across the UK.

Ofgem introduced the cap to limit the unit rate and standing price energy suppliers could charge for their default rate across England, Wales and Scotland.

The price tariff is also based on wholesale energy prices, meaning suppliers aren’t buying energy at a more expensive rate than they’re selling.

The cap is based on the average wholesale gas price over the previous six months leading up to the announcement date.

The rate is set and reviewed in February and August each year and comes into effect in October and April.

Why is it going to rise?

The cap is set to rise due to increasing wholesale gas prices which have surged since last summer, with industry group Oil & Gas UK reporting earlier this year that prices have increased by 250 per cent since the start of 2021.

Europe experienced a prolonged and colder winter which depleted gas reserves across the continent and caused demand to increase.

The UK’s wind farms also failed to fill the energy gap due to slow wind speeds during last summer, which were some of the least windy months since 1961.

China, which is the world’s largest consumer of energy, also saw an increased demand with market experts, S&P Global Platts reporting demand rose by 8.4 percent in 2021 in comparison with 2020.

While European countries have scrambled to import more gas from Russia, Gazprom - the country’s largest energy supplier - refused to increase flows to the continent.

This particularly affected the UK as just one per cent of Europe’s stored gas is held here and although Britain is a big producer of gas with 438,520 GWh a year, Norway still exports 266,155 GWh to help sustain our consumption.

Due to these circumstances, 23 energy suppliers have gone bust in the UK, the biggest being Bulb which had 1.7 million customers.

What is the Government doing to help households?

Rishi Sunak announced on May 26 that every British household would receive a £400 grant towards their energy bills from October.

You can read more about the grant here.

A one-off £650 payment to more than eight million low-income households on Universal Credit, Tax Credits, Pension Credit and legacy benefits has also been introduced.

Pensioners will receive a new £300 payment while there will be a further £150 to those on disability benefits.

The new support package will mean close to eight million households will receive an extra £1,200, including a £150 council tax rebate.

Mr Sunak also announced a £500million increase to the Household Support Fund, which will also be extended from October until March 2023.

These measures will be provided as a result of a 25 per cent energy windfall tax on firms.

The total support package is now valued at £37billion in addition to the £330 tax cut for millions of workers through the national insurance contribution threshold increase in July and 5p cut to fuel duty.

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