Payments at the moment are greater than 50 per cent increased than they have been earlier than the Covid pandemic, that means that an individual paying by direct debit and consuming a standard quantity of gasoline and electrical energy will spend £21 extra per yr.
Ofgem’s quarterly cap, which impacts 26 million households in England, Wales, and Scotland, locations a cap on the price of every unit of vitality.
Billpayers are bracing themselves for a colder season that might pressure their budgets after two comparatively gentle winters since energy prices skyrocketed.
Vitality companies declare to have carried out extra measures, reminiscent of emergency credit score, hardship cash, or the elimination of some money owed or standing expenses, to help customers in adjusting to the circumstances. Nevertheless, householders have accrued a complete of £3.7 billion in debt to suppliers as a consequence of a time of excessive pricing, which analysts predict will proceed. The everyday family in arrears owes over £1,300 for gasoline and over £1,500 for electrical energy.
Right here’s all the pieces that you must find out about who units the vitality value cap and the way it works.
Households are struggling to handle family payments
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What’s the vitality value cap and what’s Ofgem?
Ofgem, the Workplace of Fuel and Electrical energy Markets, is the unbiased regulator of the British vitality market and is meant to guard prospects. A key a part of its function is to set a restrict – a value cap – on what vitality companies cost prospects on default or normal and variable tariffs.
Ofgem was launched in January 2019 by the regulator and, though it was initially a short lived measure, it has remained in place.
The cap is a regulatory measure designed to restrict the quantity vitality suppliers can cost prospects for his or her default or normal variable tariffs. It goals to guard customers from extreme vitality costs, particularly those that don’t change suppliers frequently to seek out higher offers.
The cap applies when you’re on a default vitality tariff, whether or not you’re paying by way of direct debit, normal credit score, or a prepayment meter — it doesn’t apply to a fixed-term tariff.
Beforehand, variable tariffs had been costlier than fixed-rate offers. Individuals are typically on these tariffs as a result of they fail to change suppliers when a hard and fast time period has ended or their provider has been pressured to shut.
However, presently, fixed-term tariffs are costlier than the cap, that means most individuals are affected.
Ofgem stated in August 2022: “The worldwide rises we’re seeing in gasoline costs imply it is a very difficult time. Proper now, this may occasionally imply you discover few better-value tariffs than being on a provider’s default price coated by the Authorities’s vitality value cap, in case you are already on one.”
How is that this totally different from the vitality value assure?
After costs soared following Russia’s invasion of Ukraine in February 2022, the Authorities introduced a decrease energy price guarantee (EPG) would temporarily replace the cap. It had set a most value per unit for gasoline and electrical energy and paid any prices related to a invoice that’s greater than that quantity. The EPG, which set the everyday yearly vitality invoice at £2,500, ended on March 31, 2024 and costs are decided by the Ofgem value cap, which has been the case since July 1, 2023.
The cap limits the quantity suppliers can cost per unit of vitality (measured in pence per kilowatt-hour, or p/kWh) — and the utmost day by day standing cost (the fastened value of being linked to the vitality community).
In response to the regulator, the typical family invoice in England, Scotland, and Wales will rise from £1,717 to £1,738 yearly, or by about £1.75 monthly, beginning in January. It comes after a ten per cent value improve in October.
How does the vitality value cap work?
The vitality value cap limits the utmost quantity charged per unit of gasoline or electrical energy for patrons on default tariffs. It’s primarily based on an estimate of typical utilization for a mean family. Which means that the cap doesn’t restrict the overall invoice a family would possibly obtain — when you use extra vitality, your invoice can be increased, and when you use much less, you may pay much less.
The cap additionally features a most day by day standing cost, the fastened value of getting vitality to your house. The cap is set by the prices vitality suppliers face, which embody wholesale vitality costs, community prices, working bills, coverage prices, VAT, and a margin for earnings.
The precise cap quantity varies relying on the way you pay on your vitality, whether or not via month-to-month or quarterly direct debit, on receipt of a invoice, or when you prepay for it.
How is the vitality value cap totally different from the vitality value assure?
The vitality value cap and the vitality value assure (EPG) are associated however distinct mechanisms. After vitality costs soared following Russia’s invasion of Ukraine in February 2022, the UK Authorities launched the EPG as a short lived measure to scale back the impression on households.
The EPG units a most value per gasoline and electrical energy unit, with the Authorities masking any prices above this degree. This successfully restricted the everyday annual vitality invoice to £2,500.
In contrast to the worth cap, which displays wholesale vitality prices, the EPG was a Authorities intervention with extra safety. The EPG ended on March 31, 2024, and from July 1, 2023, vitality costs have been decided solely by the Ofgem value cap.
