Energy price cap update October 2024
Despite the energy price cap, which sets the amount that energy suppliers can charge for each unit of energy and the daily standing charge, falling in recent months, the bad news is that from 1st October 2024, the energy price cap has risen by approximately 10%. So what does this mean for households across the UK who are already struggling with the cost of living crisis, and feeling the strain on their purse strings?
According to OFGEM, this latest increase will add around £12 to an average bill for a typical household that uses mains gas and electricity and pays by direct debit, taking the average bill from £1,568 to £1,717. It's important to remember that it is the rates that are capped, and what you pay will depend on how much you use, so if you use more energy than the typical household your gas and electricity bills will be higher. Equally, if you use less energy, your bills will be lower. The actual rate you will pay will depend on factors such as where you live (there are variances in the daily standing charge by region), and how you pay your bill, i.e. whether you pay by direct debit, have a prepayment meter, etc.,
The energy price cap is reviewed every three months, in January, April, July and October, with the next review being announced by 25th November, which will set the levels for the 3-month period from 1st January 2025.
Standing charges are set by energy suppliers and included in the energy price cap so stay the same no matter how much energy you use as they are a daily fixed cost, even if no energy is used whatsoever, say if you are away from home. OFGEM is considering ways to increase consumer choice - one option that is being considered is to reduce domestic standing charges for households and shift some of the standing charge costs to the unit rate charged for every unit of electricity used. Some say this would be beneficial as cutting energy usage would have a greater impact on bills for householders.
November 2024
News from Chancellor Jeremy Hunt yesterday that national insurance contributions will be cut in January 2024 by 2 percentage points from 12% to 10% for earnings between £12,571 and £50,572 will have been welcomed by many of us, without doubt. The announcement, which was delivered as part of the Chancellor’s Autumn statement, has been closely followed today by the not-so-good news that OFGEM, Great Britain's independent energy regulator, is soon to increase the energy price cap by 5% on the previous quarter. Cold comfort for many!
With many feeling the cost of living squeeze, the news that bills are set to rise again has come as temperatures are set to fall in the coming days, but this increase will not take effect until January next year. However, it does look as though with winter will come rising energy costs once again, and in this blog we’re going to take a look at what this means for all of us, why energy prices are still unstable, and what we can all do to help ourselves get through these times of uncertainty.
What does this mean for households?
Many of us thought we were past the worst of the pain, having seen energy prices fall throughout this year, but the latest change to the energy price gap, which according to the BBC affects around 29 million households in England, Wales and Scotland, will result in rising energy prices once again.
Standing charges, however, are not set to change and will remain at 53p a day for electricity, and 30p a day for mains gas. Whilst the good news is that these charges are not increasing, it does mean that, no matter how much you reduce your energy usage, you will still have these set charges to pay. Standing charges are fixed daily charges that are said to cover operating costs including the cost of maintaining the infrastructure and customer service costs, amongst other things, regardless of the amount of electricity or gas a household uses.
As of January, the price of electricity will be set at 29p per Kilowatt hour (KWh) and for mains gas, 7p per KWh, and this means that annual bills will rise by £94 from £1834 to £1,928, based on an average household paying by direct debit for dual fuel.
It is important to remember that there is no cap on your actual bill, and that the estimated increase is based on average use only. So if you use more electricity and gas, your bills will be higher – the more you use, the more you pay. And of course, last year the government provided support to UK households via the Energy Bills Support Scheme which gave every household a £400 discount on their energy bills for the winter 2022 to 2023; this is not to be repeated for this coming winter.
Jonathan Brearley, CEO of Ofgem, has acknowledged that this is a difficult and worrying time for many people. He said that this rise ‘is a result of the wholesale cost of gas and electricity rising, which needs to be reflected in the price that we all pay’.
If you are worried about paying your energy bills, Ofgem has some useful advice for householders and would urge you to contact your energy supplier as soon as possible.
Why are energy prices rising again?
The energy price cap was introduced by the government in January 2019 and has been in place ever since. The regulator, Ofgem, is required to regularly review the level at which it is set – the cap sets a limit on the cost of each unit of gas and electricity used by households. Changes to the energy price cap are influenced by wholesale energy prices which have gradually fallen in 2023, but they spiked again in October and November this year, which is largely due to the conflict in Gaza.
The wholesale price of power is one of the biggest components of your overall energy costs and market forces can lead to it going up and down and, whilst the energy market is in a different situation to what it was at this time last year and is more stable, with Russia having left the global market, things remain tight – Russia was one of the world’s top seabourne exporters of fuel, just ahead of the United States.
When will prices fall back?
Currently, experts are predicting that energy prices may fall back again in April next year, but there are no guarantees. In reality, predicting energy price movements is uncertain as unforeseen events can quickly alter market conditions. There are so many different factors that affect energy prices in addition to the unrest in Russia and the Gazza Strip – supply and demand, currency movements, political events, and even shipping prices to name a few.
Standing charges – here’s your chance to have your say!
However careful you are about the amount of electricity or gas you use and however much you reduce your consumption, standing charges are fixed costs that have to be met. They vary by region, but usually equate to approximately £300 a year.
Ofgem launched a consultation into standing charges on 16th November 2023 which will look at how standing charges are applied to energy bills currently and what alternatives could be considered. Director for Markets at Ofgem, Tim Jarvis said ‘We know that standing charges have provoked a huge amount of debate in recent months and with wider cost of living pressures meaning customers will continue to struggle with bills, now is the right time to look at this again’.
Ofgem wants to hear from you! It's interested in your views about how standing charges are added onto gas and electricity bills at present, and would like to hear about any thoughts you may have on how the cost of the things currently covered by standing charges could be paid for if standing charges were to be removed. You can email your views to them at StandingCharges@ofgem.gov.uk by Friday 19th January 2024.
What action can I take?
Rest assured that there’s still plenty we all can do to see us through the cold winter months and make sure we stay ‘as snug as a bug in a rug’. Many of the energy-saving tips in our ‘Top tips for saving energy this Autumn’ blog cost little if anything to implement and are quick fixes.
For instance, homemade draught excluders can be made from old clothing, are really effective and can make a huge difference. Or putting kitchen foil down the back of your radiators will reflect heat back into your rooms rather than letting it escape through your walls. Alternatively, DIY’s and builders merchants often sell specialist radiator foil which is inexpensive and easy to apply.
And if you live off grid, and you use heating oil or LPG, we're just at the end of the phone and here to help. Call us on 01423 770 666 or email us at helpoil@northernenergy.co.uk.