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The Guardian - UK
The Guardian - UK
Business
Jasper Jolly

Ofgem confirms energy price cap to be updated every three months

A women checks her electricity meter against an energy bill.
A women checks her electricity meter against an energy bill. Photograph: UrbanImages/Alamy

Ofgem has confirmed that the energy price cap will be updated quarterly, rather than every six months, as it warned that customers face a “very challenging winter ahead”.

The energy regulator said reviewing the price cap for household bills every three months would allow it to “adjust much more quickly” to volatility in the market.

Energy prices surged last year as the global economy recovered from Covid-19 lockdowns. The invasion of Ukraine in late February then prompted a further jump in prices, as western allies sought to economically isolate Russia, a major gas and oil supplier.

The knock-on effects of the energy price rises have been felt across the world, and in the UK it exposed a price cap system that was “not fit for purpose for the kind of market we have today”, said Jonathan Brearley, the chief executive of Ofgem.

The regulator raised the cap on the average dual-fuel tariff by 54% to £1,971 from April, the biggest increase since the cap was introduced in 2019.

Consumers have been warned they face another big hiketo just under £3,500 when the next cap – which comes into effect in October – is announced later this month.

Analysts at Cornwall Insight have predicted the price cap is on track to rise to £3,615 a year from January, piling further pressure on households as the cost of living crisis intensifies.

In an indication of the difficulties facing the gas supply market, the average price of gas bought on the day by UK distributors jumped to 9.8p per kilowatt hour over the week, the highest level since the middle of March, when markets went haywire after Russia’s invasion of Ukraine. The Office for National Statistics, which compiled the data, said it had seen “significant increases”.

Increasing the cap every three months instead of every half year will mean that prices will rise more quickly for consumers to reflect higher wholesale prices – as well as falling more quickly when they dip.

Ofgem has faced some criticism of the timing of the move, which will mean consumers paying more this autumn if, as expected, wholesale energy prices remain high.

A spokesperson for the campaign group End Fuel Poverty Coalition said: “Households will face a two-stage cost of living crisis this winter, thanks to Ofgem’s confirmation that energy bills will go up in October and again in January.

“Ultimately, this decision will force more people into fuel poverty in the middle of winter, causing additional stress on the NHS and it may ultimately lead to increased levels of excess winter deaths this year. It is simply inhumane.”

Brearley defended the move towards the more frequent updates on the energy price cap, and said it would prevent the failure of more suppliers, the cost of which is indirectly passed to consumers. The National Audit Office has said the failures of 28 energy firms during the crisis will cost consumers £2.7bn.

“The price cap may well go up if costs go up, and I’d caution against too many predictions of change,” he told BBC Radio 4’s Today programme. “Those predictions far out are hard to make. But equally when prices come down the price cap will come down equally quickly.”

Brearley added: “I know the changes we are seeing do not feel fair to anybody, but these are ultimately driven by the changes we are seeing globally in the gas price, and that’s not a British problem. That’s a global problem.”

He also said Ofgem was looking at standing charges, the fixed fee for being connected to the grid regardless of how much energy is used. Users of prepayment meters, many of whom are described as more vulnerable by anti-poverty campaigners, pay particularly high standing charges, and the regulator has faced calls for months to take action to reduce the fixed costs.

Ofgem was “coming forward with proposals in the coming weeks”, Brearley said.

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