What is the energy price cap? What does it mean for you?

Martin Lewis warns of 'damaging' energy price cap rise

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Britons are already feeling the crunch in 2022, as rising energy prices from 2021 bite into their paychecks. Last year saw shortages and demand prop up an already expensive market, forcing a series of energy firms to shut their doors. The Office of Gas and Electricity Markets (OFGEM) will respond by adjusting the energy price cap today, with an announcement at 11am.

What is the energy price cap?

The energy price cap is a customer protection measure introduced by the Government in 2019 to prevent overcharging.

The cap provides energy firms with a ceiling for variable dual-fuel rates, applying to gas and electricity for six months at a time.

That rate depends on a series of variables, including wholesale power costs over the last half a year.

Higher wholesale costs create more pressure on companies, and regulators may permit higher prices to offset deficits.

The policy doesn’t cap people’s bills, just the amount companies can charge for fuel and electricity.

Customers will still see their bills rise if they use a significant amount of electricity or heat at home.

OFGEM translates its rates into an estimated average annual bill for households that use typical electricity and gas rates.

At present, it is £1,277 per year, but people with alternative arrangements will see their averages rise.

Those using prepayment meters – approximately 4.5 million people in the UK – have a different cap, setting their average bills at roughly £1,309 a year.

The latest price cap adjustment will activate on April 1 this year and last for just under six months until September 31.

While the last one saw bills rise by 12 percent, experts fear today’s announcement will leave customers footing an additional 50 percent.

What does the energy price cap mean for customers in 2022?

The price cap announcement today will most likely hit households with a significant new burden.

Unfortunately, it follows a year of hardship for many companies that had to navigate increased demand, unfavourable conditions for alternative fuel generation and political unrest.

These have left wholesale prices much higher, meaning OFGEM may allow them to transfer some of that burden to consumers.

Analysts fear OFGEM may allow companies to increase the typical household bill by up to £700.

Today’s adjustment may not end up being the last price surge Britons see in 2022.

The gas crisis, previously thought to be a winter issue, could likely pursue past October.

Early analysis suggests that the next cap could increase by £400 without Government intervention.

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