Ofgem today confirmed the energy price cap will be updated quarterly, rather than every six months, as it warned that customers face a ‘very challenging winter ahead’.
The energy regulator said this switch to changes every three months means ‘prices charged to bill-payers are a better reflection of current gas and electricity costs’.
Ofgem added that this will also allow ‘energy suppliers to better manage their risks, making for a more secure market helping to keep costs down for everyone’.
The London-based regulator claimed that the change to when the energy price cap is updated ‘will go some way to provide the stability needed in the energy market’.
But charities warned that while it could reduces costs in the long term, the change in frequency ‘does the opposite of help this winter – in the middle of an energy crisis’.
Others tweeted that ‘a price cap every three months is effectively not having a price cap’ – and Ofgem must be ‘brought under control’ and ‘isn’t fit for purpose’.
Ofgem said it is also aiming to ‘reduce the risk of further large-scale supplier failures which cause huge disruption and push up costs for consumers,’ adding: ‘It is not in anyone’s interests for more suppliers to fail and exit the market.’
The regulator added that although Britain only imported a small amount of Russian gas, as a result of Russia’s actions, the volatility in the global energy market experienced last winter had lasted much longer, with much higher prices for both gas and electricity than ever before.
As expected, Ofgem also warned that as a result of the market conditions, the price cap would have to rise to reflect increased costs.
The next price cap level will be published at the end of this month.
Ofgem chief executive Jonathan Brearley said: ‘I know this situation is deeply worrying for many people. As a result of Russia’s actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before.
‘And that means the cost of supplying electricity and gas to homes has increased considerably.
‘The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now.
‘Today’s changes ensure the price cap does its job, making sure customers are only paying the real cost of their energy, but also, that it can adapt to the current volatile market.
‘We will keep working closely with the Government, consumer groups and with energy companies on what further support can be provided to help with these higher prices.’
Changes to the price cap come as household energy bills are likely to remain at more than two-and-a-half times their pre-crisis levels until at least 2024, according to latest predictions.
Cornwall Insight, one of the country’s most respected energy consultancies, said bills will hit a staggering £3,359 per year from October for the average household, and not fall below that level until at least the end of next year.
The price cap on energy bills, which regulates what 24 million British households pay, will hit £3,616 from January and rise further to £3,729 from April, it said.
It will begin to fall after that, but only slowly, reaching £3,569 from July before hitting £3,470 for the last three months of 2023.
The latest predictions are hundreds of pounds above previous forecasts from Cornwall Insight, but are slightly lower what another consultancy, BFY, has predicted.
In May, the Government announced an energy costs support package – worth £400 per household – in response to predictions that bills would rise to £2,800 for the average household in October.
The package also promised extra support for more vulnerable households.
Last month, Cornwall Insight predicted that annual energy bills would typically rise to £3,244 from October and £3,363 from January, but circumstances have changed significantly since then.
The latest forecasts come after the Kremlin further strangled the flow of gas to Europe.
While the UK gets very little of its gas directly from Russia, the price paid here is determined by what happens across the Continent.
If the predictions come to pass they will put enormous pressure on already squeezed households.
It would be a near-doubling of today’s record price cap which at £1,971 is already hundreds of pounds more than the previous high.
Although it is still early days for the January prediction, analysts already have most of the data they need to accurately forecast October’s rise.
National Energy Action director of policy and advocacy Peter Smith said: ‘Ofgem moving ahead now with passing price cap changes on to households quarterly rather than every six months wasn’t necessary and unfortunately means further significant price increases in January are inevitable.
‘Average annual bills are already predicted to increase by £1,200 a year – a 177% increase since last October. Now, householders can expect further hikes just after Christmas, in the middle of heating season when energy costs are typically at their highest.
‘January is also usually a time of increased mental health problems and further hikes in bills will sadly lead to increased misery and huge anxiety for energy consumers across Great Britain, particularly for the poorest households.
‘It’s disappointing that Ofgem has not listened to these concerns. They could have used their discretion to offset this avoidable outcome by starting the reforms in April when energy demand starts to fall.
‘This change also strengthens the growing calls for deeper price protection for the poorest households, something Ofgem can and must help support.’
And Matt Copeland, head of policy and public affairs at National Energy Action, said: ‘Confirmation from Ofgem this morning that the price cap will update quarterly. Probably means it will increase in January. One week after Christmas.
‘Possibly reduces costs in the long term, but does the opposite of help *this* winter – in the middle of an energy crisis.’
Gillian Cooper, head of energy policy at Citizens Advice, said: ‘Something that’s added to all our bills is the cost of supplier failures. Changing to a quarterly price cap should limit the risk of any more suppliers going bust, which is a good thing. But our bills are already incredibly high and still rising.
‘The Government was right to bring in financial support for people, but it may not be enough to keep many families afloat. It must be ready to act again before winter draws in.
‘Ofgem must make sure suppliers are helping customers who are struggling to pay. It should hold energy companies to account so people aren’t chased by debt collectors or pushed onto prepayment meters when they can’t keep up with bills.’
Consumer expert Harry Wallop tweeted: ‘Ofgem confirms energy cap will change every three months. In order to protect companies from going bust – something that ultimately adds costs to consumers’ bills.
‘But all those companies went bust last winter because Ofgem was asleep at the wheel when times were good.’