Energy price cap to come into force on January 1
Britain’s energy price cap to protect 11 million households on rip-off gas and electricity tariffs will come into force on January 1, saving consumers up to £120 each.
But regulator Ofgem revealed the cap is already likely to be increased next April due to soaring wholesale energy costs.
The cap will collectively save customers around £1 billion by limiting the amount providers can charge for poor-value standard variable tariffs.
Ofgem said the cap was to be initially set at £1,137 per year for a typical dual fuel customer paying by direct debit.
It will save households around £76 per year on average, with those on the most expensive tariffs saving £120.
But Ofgem added it is likely to announce just a month later that the cap will be increased, to take effect in April, after wholesale energy costs have risen “significantly” over the past year and continue at the same pace.
The cap is set to be updated in April and October every year to reflect the latest estimated costs of supplying electricity and gas, including wholesale energy costs.
Ofgem chief executive Dermot Nolan said: “From January 1, the energy price cap will put an end to customers on default tariffs being overcharged as much as £1 billion for their gas and electricity.
“The price cap will ensure that, whether energy costs rise or fall, suppliers are not feathering their nest and changes in energy prices will reflect the underlying costs to heat and light our homes.”
He added: “Consumers who want to cut their bills further should shop around for a better energy deal and, while the cap is in place, we will continue our work to make this as easy as possible.”
Consumer groups welcomed news of the official start date for the cap.
Gillian Guy, chief executive of Citizens Advice, said: “This price cap will finally offer some much-needed protection for loyal households on default tariffs, who have been exploited for too long.”
But Stephen Murray, energy expert at MoneySuperMarket, warned that the cap is “not sustainable”.
He said: “The cap will be reviewed again in February, when market forces look likely to dictate it will rise significantly.
“That means we could be looking at three months’ gain and then 12-18 months of long-term pain for people who do nothing and let the regulator control their bills.”
Ofgem’s announcement on the start date comes after it was given legal powers by the Government in July to introduce the cap.
It has already capped bills through its safeguard tariff for four million pre-payment meter households, which was extended in February to one million more vulnerable consumers on poor-value default deals who already received the Government’s Warm Home Discount.