Millions of people across the country are facing higher energy bills after Ofgem confirmed its price cap will go up.
The energy price cap will increase to £3,549 in October for those on default tariffs paying by direct debit. This is a rise of £1,578 - or roughly 80% - from the current level of £1,971. For those paying by prepayment meter, there is a bigger jump from £2,017 to £3,608.
Standard credit customers, where customers pay once they've received their bill, will see their price cap rise from £2,100 to £3,764, reports The Mirror. But what exactly is the price cap and how will the rise affect you? Here is everything you need to know.
Read More: Energy bills to soar for millions as Ofgem confirms price cap will rise to £3,549
What is the Ofgem energy price cap?
The price cap limits the rates a supplier can charge for their default or standard variable rate tariffs. More specifically, it sets a cap on each unit of gas and electricity you use, as well as the standard charge.
This means - despite what its name suggests - there isn’t actually an upper limit on what you pay. If you use more energy, you’ll pay more - or use less, and you’ll pay less. The price cap represents a customer with typical usage, paying by direct debit.
Will my energy bills go up?
Around 24 million people are covered by the price cap right now - these are people on default tariffs. This can include:
- Those who have never fixed into an energy deal
- Those who didn’t switch after their fixed deal came to an end
- Those whose supplier went bust and they didn’t switch
- Those who have just moved home and haven’t switched
If you are on a default tariff, then you will see your bills go up in line with the price cap. Some tariffs are exempt from the price cap - for example, some green and special time of use tariffs.
When will the Ofgem price cap next be reviewed?
Ofgem reviews its price cap every three months, with the next rate to come into effect from October 1, 2022. The next time the price cap will be reviewed will be in January 2023, then April 2023 and July 2023. Ofgem will confirm its price cap rate for January 2023 on November 24, 2022.
How does Ofgem decide its price cap level?
The price cap is calculated based on lots of different factors - the largest being the cost of wholesale energy, which has continued to soar. Other elements include things such as the cost of maintaining pipes and wires that carry gas and electricity, or the operating costs suppliers face for billing customers. Ofgem also looks at things like network and operating costs, as well as VAT, payment method allowances, profits for the energy supplier, and other costs.
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