Tag: Ofgem

More energy misery as Ofgem announces 10% price cap hike


23 August 2024 – OFGEM STATEMENT

Every 3 months we review and set a level for how much an energy supplier can charge for each unit of energy and daily standing charge, under the price cap. 

From 1 October to 31 December the price for energy for a typical household who use electricity and gas and pay by Direct Debit will go up to £149 per year. This is an increase of 10% and adds around £12 per month to an average bill.

The new cap is 6% (£117) cheaper compared to the same period last year (£1,834).

You are covered by the energy price cap if you pay for your electricity and gas by either: 

  • standard credit (payment made when you get your electricity and gas bill) 
  • Direct Debit
  • prepayment meter
  • Economy 7 (E7) meter

The actual amount you pay will depend on how much energy your household uses, where you live and the type of meter you have.  

Energy price cap rates 1 October to 31 December

Electricity rates

If you are on a standard variable tariff (default tariff) and pay for your electricity by Direct Debit, you will pay on average 24.50 pence per kilowatt hour (kWh). The daily standing charge is 60.99 pence per day. This is based on the average across England, Scotland and Wales and includes VAT.

Gas rates

If you are on a standard variable tariff (default tariff) and pay for your gas by Direct Debit, you will pay on average 6.24 pence per kilowatt hour (kWh). The daily standard charge is 31.66 pence per day. This is based on the average across England, Scotland and Wales and includes VAT.

Costs included in the energy price cap

The level of the energy price cap is made up of different costs, for example the wholesale cost of gas and electricity, costs to supply energy on the network and VAT. These costs are split within the energy price cap between the unit rate and the standing charge.

Read about typical household energy use and how the energy price cap is calculated on our Average gas and electricity use explained page. 

View and compare 1 October to 31 December and 1 July to 30 September energy price cap standing charges and unit rates by region. 

You can also get and compare all the energy price cap (default tariff) levels. 

Review of standing charges

Last year we started a review of standing charges. Our call for input had feedback from more than 30,000 customers, consumer groups, charities and others.

Today we have published an options paper on our ways to reduce standing charges for households, called ‘domestic standing charges’. Standing charges are set by your energy supplier and are also included in the energy price cap. Your supplier will charge you this cost each day, even if you do not use any energy on that day. The charge covers the cost to maintain the energy supply network, take meter readings, and support government social and environmental schemes, like the Warm Home Discount scheme. 

View Understand your electricity and gas bill

The options in the paper could reduce the standing charge by between £20 and £100 per year by transferring parts of these fixed supplier costs to the unit rate (the price paid for every unit of energy used). 

We know that if these changes are made it could affect people who cannot safely reduce the amount of energy they use. This could be because of their dependence on life-saving medical equipment or living in a low standard of housing with poor insulation.

We are asking energy suppliers to offer energy tariffs that have no or low standing charges as well as their current tariffs. This will mean that energy efficient households will be able to choose a tariff that rewards them for using less energy. It will also mean that other energy customers can also choose from more tariffs that meet their needs.

You could pay less for your energy by changing your energy tariff. Find out if you can change your tariff and how to switch energy supplier.  

The options paper also sets out long-term considerations relating to the assignment of network costs, as a part of a broader review of how electricity and gas system costs are recovered from users.  

We would like to hear your views on standing charges. The discussion closes on 20 September 2024. Read our standing charges options paper and feedback your views using our online form.

Support for people with a prepayment meter

We have also extended our initial 12-month allowance to cover increased debt costs associated with additional support credit which we expect to be in place for at least another 6 months.   Additional support credit is often issued to people at risk of being cut off from their energy supply because they cannot afford to top up their meter. This decision means that the most vulnerable consumers will continue to be supported and have an energy supply this winter.

Next energy price cap review

We review and set a level on how much an energy supplier can charge for each unit of energy including the standing charge every 3 months. The levels for the period 1 January to 31 March 2025 will be published by 25 November 2024. 

Caroline Abrahams, Charity Director at Age UK said: “Means-testing Winter Fuel Payment (WFP)  when fuel prices are rising by 10% spells disaster for pensioners on low and modest incomes or living in vulnerable circumstances due to ill health.

“It means an estimated 2 million older people in all, will face an even steeper mountain to climb in paying their energy bills and staying warm and well when the weather chills. With pensioners also losing the cost-of-living payments they’ve received over the last two years we simply cannot see how some of them will cope.

“This latest bad news about the Energy Price Cap rising quite significantly makes it even more obvious that means testing WFP with virtually no notice & with no protections to safeguard vulnerable groups was the wrong policy choice and one that is potentially hazardous for some older people.”

“There’s scarcely any time to tackle the long-term under-claiming of Pension Credit – for more than a decade a third of pensioners who are entitled to it have consistently missed out. And the million or so older people whose small incomes take them just above the line to claim are horribly exposed – no take-up campaign can help them.” 

“Means-testing WFP in these circumstances this winter is reckless and wrong. The Government must think again.”

Age UK urges any older person living on a low income or struggling with their bills to contact Age UK’s free Advice line on 0800 169 65 65 without delay to check they’re receiving all the financial support available to them.

Alternatively, people can visit www.ageuk.org.uk/money or contact their local Age UK for further information and advice.

National Energy Action has responded: Just now, @Ofgem announced that #EnergyBills will rise 9% from October. NEA Chief Executive @adam_scorer says, ‘There is still time for @Ofgem and UK government to act for those at greatest risk, but without support.’

Ofgem: Welcome fall in the price cap but high debt levels remain

Energy regulator Ofgem has today (Friday 23 February, 2024) announced a significant reduction of the energy price cap for the second quarter of 2024. 

The price cap, which sets a maximum rate per unit that can be charged to customers for their energy use, will fall by 12.3% on the previous quarter from 1 April to 30 June 2024. For an average household paying by direct debit for dual fuel this equates to £1,690, a drop of £238 over the course of a year – saving around £20 a month.  

This will see energy prices reach their lowest level since Russia’s invasion of the Ukraine in February 2022 caused a further spike in an already turbulent wholesale energy market, driving up costs for suppliers and ultimately customers. 

However, despite reaching this welcome milestone, Ofgem recognises that the cost of living remains high and many customers continue to struggle with their bills as standing charges rise and energy debt reaches a record figure of £3.1 billion. 

Therefore, today Ofgem is also announcing: 

  • Confirmation of the levelisation of standing charges to remove the ‘PPM premium’ previously incurred by prepayment customers.  
  • A decision to allow a temporary adjustment to the price cap to address supplier costs related to increased levels of bad debt. 
  • A decision to extend the ban on acquisition-only tariffs (BAT) for up to another 12 months. 
  • Confirmation of the end of the Market Stabilisation Charge (MSC) from April 1. 
  • A decision not to change wholesale cost allowances following a review conducted in late 2023. 

Jonathan Brearley, CEO of Ofgem, said: “This is good news to see the price cap drop to its lowest level in more than two years – and to see energy bills for the average household drop by £690 since the peak of the crisis – but there are still big issues that we must tackle head-on to ensure we build a system that’s more resilient for the long term and fairer to customers. 

“That’s why we are levelising standing charges to end the inequity of people with prepayment meters, many of whom are vulnerable and struggling, being charged more up-front for their energy than other customers.  

“We also need to address the risk posed by stubbornly high levels of debt in the system, so we must introduce a temporary payment to help prevent an unsustainable situation leading to higher bills in the future. We’llbe stepping back to look at issues surrounding debt and affordability across market for struggling consumers, which we’ll be announcing soon. 

“These steps highlight the limitations of the current system – we can only move costs around – so we welcome news that the Government is opening the conversation on the future of price regulation, seeking views on how standard energy deals can be made more flexible so customers pay less if using electricity when prices are lower. 

“But longer term we need to think about what more can be done for those who simply cannot afford to pay their energy bills even as prices fall. As we return to something closer to normality we have an opportunity to reset and reframe the energy market to make sure it’s ready to protect customers if prices rise again.” 

Affordability remains the most significant issue, as people continue to struggle with bills over the last two years, which has led to record levels of energy debt. 

 

To address this challenge in the short-term, Ofgem will allow a temporary additional payment of £28 per year (equivalent to £2.33 per month) to make sure suppliers have sufficient funds to support customers who are struggling.

This will be added to the bills of customers who pay by direct debit or standard credit and is partly offset by the termination of an allowance worth £11 per year that covered debt costs related to the Covid pandemic.  

Prepayment meter (PPM) customers will not be impacted by the extra charge, reflecting the fact that many do not build up the same level of debt as credit customers because they top up as they go. 

Ofgem also confirmed plans to maintain the equalisation of standing charges across payment methods so that customers are not charged more depending on the payment method they use.

Since October 2022 the so-called ‘PPM premium’ was removed by government support via the Energy Price Guarantee. However, with that support coming to an end on April 1, Ofgem has taken steps to provide a lasting solution, which must be funded by bill payers rather than tax payers, to maintain fairness in the system. 

This means PPM customers will save around £49 per year while direct debit customers will pay £10 per year more. 

Increasing network costs has also contributed to the rise in standing charges – and in anticipation of this we published a call for input in November 2023 and are currently reviewing more than 40,000 responses. 

Today Ofgem is also publishing a decision to extend the ban on acquisition-only tariffs (BAT) for another 12 months, but intends to open a consultation to consider shortening this extension to just six months. 

The BAT was introduced in April 2022 to provide more stability at the height of the energy crisis, removing often risky short-term discounted tariffs intended to attract customers from other suppliers. 

As competition returns to the market, Ofgem is encouraging rising numbers of customers switching with a number of measures, including shortening the time suppliers are given to complete a customer transfer from 15 days to just five. 

Additionally, from 1 April, the Market Stabilisation Charge – introduced in tandem with the BAT – will come to an end, meaning suppliers are no longer required to compensate a new customer’s previous supplier when they switch. 

This influenced the regulator’s decision to temporarily extend the BAT rather than remove both safeguards at the same time, ensuring a phased and responsible return towards normality in the market while preventing a return of the risky behaviours which contributed to the high number of supplier failures during the energy crisis. 

Ofgem is also publishing a decision following its wholesale adjustment review. Following unusually high volatility in wholesale prices between October 2022 and September 2023, the regulator examined whether suppliers experienced differences between wholesale costs and the allowances they were allowed to recover via the price cap. 

However, after careful consideration the regulator has concluded to take no further action as wholesale costs did not systematically differ from allowances. 

Citizens Advice Scotland has responded to today’s announcement by Ofgem, setting the energy price cap at £1,690.

The charity is stressing that even though prices are coming down they are still way too high for many households.

CAS Social Justice spokesperson Matthew Lee said: “Today’s announcement has to be seen in the context of peoples’ incomes and how badly households have been battered by the cost-of-living crisis of the past 18 months.

“Even if prices are coming down they are still way too high for many people to be able to afford, particularly the many who have had to go into debt to cover their energy costs since the price surge in 2022.

“It’s important that we don’t become complacent about the lower cap. The fact is that too many people are still struggling to pay these bills, and more targeted financial support like a social tariff is needed for the most vulnerable households.”

Previous CAS research on energy affordability has found that: 

  • Nearly 3 million people report switching the heating off when it’s cold, wrapping themselves in blankets and extra layers instead.
  • 1.4 million people regularly sit in the dark, with no TV or laptop/tablet on, to save on energy bills.
  • Nearly 3 million people in Scotland have cut back on food as a result of rising energy bills.
  • Tens of thousands of people in Scotland have been forced onto pay as you go energy meters against their will.
  • Over 300,000 people say they are concerned about energy debt.
  • In December the average energy debt for people seeking complex debt advice was £2,307 – up nearly £500 compared to the same time last year.
  • 185,000 people say they have changed their bathing habits to save on hot water – they’re sharing bathwater or showering at work or at the gym.

Charities, community projects and customers benefit from £72 million thanks to Ofgem enforcement action

Millions of pounds recovered from firms by Ofgem have been used to help communities across the country in 2023. 

Ofgem steps in when energy companies breach their licence conditions or are found to be failing customers. 

In 2023, the regulator recovered a total of £77.2 million in fines, customer refunds, compensation and alternative action payments – up by £50.5 million compared to 2022’s total of £27.3 million. This includes £5 million worth of fines. 

Examples of breaches include three electricity generators that unfairly raised consumer bills, poor customer service including unacceptable call waiting times and failure to automatically provide compensation for delays in final billing when switching. 

As well as fines and alternative action payments, Ofgem also made energy firms pay £13 million to customers in 2023 – over a million pounds a month – for poor service. 

The vast majority of money recovered from energy companies this year – set to reach over £57 million – was paid into Ofgem’s Energy Redress Fund, which benefits charities and community projects that help vulnerable customers with energy-related support.  

Cathryn Scott, Director for Enforcement and Emerging Issues at Ofgem, said:  “Protecting customers and ensuring that they are treated fairly is at the heart of Ofgem’s mission. 

“That’s why we make suppliers pay when they break the rules or fall short of the high standards we set – and when they do, it’s only right that customers should be the ones who benefit. 

“Every year, the Energy Redress Fund makes a positive difference to the lives of customers across Great Britain, particularly people who are struggling and vulnerable, so to see the fund pass the £100 million mark is a significant milestone. 

“This could not have happened without the thorough investigative work of our compliance and enforcement teams to identify licence breaches or poor behaviour by energy companies, or the Energy Saving Trust who ensure the money is targeted to reach those in need.” 

Since it was set up in 2018, the fund, managed by the Energy Saving Trust, has received more than £137 million and handed out £102 million in grants to 538 projects across England, Wales and Scotland. A further £35 million in funding will be available to be distributed to new and existing projects, and a new round of grant applications is due to open in the new year. 

The nature of support provided varies widely but includes:  

  • £20 million in fuel vouchers issued to charities to identify and provide help to vulnerable customers at risk of disconnection from their energy supply 
  • providing energy advice to more than 500,000 households and installing energy saving methods for more than 150,000 homes to help reduce bills 
  • working to ensure that future home heating controls and new energy technologies work for everyone including people living with disabilities 

This is in keeping with Ofgem’s mission to protect consumers from unfair costs and to drive up standards throughout the energy industry. The significant rise in fines reflects Ofgem’s proactive work to identify issues via a range of methods. 

Among the 538 projects supported by the energy redress fund is the Warm Hubs centre in the coastal village of Seahouses, Northumberland. 

Redress funding has helped to drive the development of this vital community resource, established by the Community Action Northumberland charity, and a lifeline service last winter at the height of the energy crisis. 

Created as a response to tackling fuel poverty, Warm Hubs offer a safe, warm and friendly environment where people can get information, advice, access to services as well as refreshments and the company of other people.  

Energy saving advice and guidance on home insulation is also provided by onsite Community Energy Agents to help people take positive action in their own homes to cut bills.  

These Warm Hubs became an integral part of communities across Northumberland during Storm Arwen in November 2021, when widespread damage to the network left 4,000 homes without power for more than a week.  

With emergency generators set up at the Warm Hubs, people had a place where they could come for a hot meal and a warm shower. 

Christine Nicholls of Community Action Northumberland (CAN) said:  “Without the support of Redress and Vulnerability and Carbon Monoxide Allowance (VCMA) funding we would not have been able to support the huge number of rural households through the recent energy crisis.

“We are very proud of our Warm Hub scheme.” 

Laura McGadie, Head of Energy at Energy Saving Trust, said: “We are pleased to have managed the distribution of more than £100 million in much-needed funds from the Redress scheme to frontline charities and social enterprises since 2018. 

“The projects funded by the scheme are helping customers in the most vulnerable situations through the cost of living crisis, but they also look to the future. 

“Charities and social enterprises have a crucial role to play in ensuring no one is left behind as we transition to net zero and that we all have a voice and a role in the changes that are coming to our energy system.”  

Energy price cap rise will “hammer households even harder” in 2024

  • The energy price cap has increased to £1,928 raising the average bill by £94
  • Union body says UK is “feeding foreign firms’ profits” while British households struggle 

Commenting on Monday’s energy price cap announcement, TUC General Secretary Paul Nowak said: “No one should struggle to get by in one of the richest countries in the world. 

“But 13 years of wage stagnation and cuts to social security have left millions badly exposed to sky-high bills this winter. 

“Energy bills are already 50% higher than two years ago, so today’s rise will just hammer households even harder in the coming year. “ 

“It doesn’t have to be this way.  

“Other governments are investing in publicly owned clean power and insulating homes.” 

“The UK is feeding foreign firms’ profits and subsidising cheaper bills abroad, while British households struggle to heat their homes and pay their bills.” 

Ofgem: Increased wholesale energy costs lead to rise in price cap

Energy regulator Ofgem has today (Thursday 23 November, 2023) announced the energy price cap for the first quarter of 2024.  

The price cap will increase by 5% on the previous quarter from 1 January to 31 March 2024. For an average household paying by direct debit for dual fuel this equates to £1,928, a rise of £94 over the course of a year – around £7.83 a month. The price cap, updated every quarter, sets a maximum that can be charged to customers for energy bills. 

Ofgem’s priority is to protect consumers and ensure that they pay a fair price for their energy. Today’s price increase is driven almost entirely by rising costs in the international wholesale energy market due to market instability and global events, particularly the conflict in Ukraine. 

The regulator will continue to use all levers available to ensure costs are spread fairly and   customers struggling with bills are supported. It has today further developed plans to permanently remove the so-called ‘prepayment meter premium’ to ensure that prepayment customers are charged the same standing charge as direct debit customers. Ofgem has already launched a ‘Call for Input’ on standing charges running until 19 January, 2024. 

Jonathan Brearley, CEO of Ofgem, said: “This is a difficult time for many people, and any increase in bills will be worrying. But this rise – around the levels we saw in August – is a result of the wholesale cost of gas and electricity rising, which needs to be reflected in the price that we all pay. 

“It is important that customers are supported and we have made clear to suppliers that we expect them to identify and offer help to those who are struggling with bills. 

“We are also seeing the return of choice to the market, which is a positive sign and customers could benefit from shopping around with a range of tariffs now available offering the security of a fixed rate or a more flexible deal that tracks below the price cap.  

“People should weigh up all the information, seek independent advice from trusted sources and consider what is most important for them whether that’s the lowest price or the security of a fixed deal.” 

Ofgem recently set out new rules for suppliers making clear that they should be prioritising enquiries from vulnerable customers who need help and proactively reaching out to households if they miss two monthly or one quarterly payment, check to see if they are struggling with bills and, if so, offer support such as affordable payment plans or, if appropriate, repayment holidays. 

The regulator has also taken robust action to raise standards of customer service and worked in conjunction with suppliers and consumer groups to encourage industry to support those struggling with their bills, including the Winter 2023 Voluntary Debt Commitment recently announced by Energy UK and Citizens Advice. 

A Statutory Consultation on levelling standing charges for prepayment meter and direct debit customers so customers pay the same daily charge has been published today.  

Previously, customers on prepayment have been charged more than those who pay by direct debit to cover the additional costs and resources required by suppliers to provide their services. 

In October 2022, the government introduced measures to temporarily remove this ‘PPM premium’ via the Energy Price Guarantee, which remains in place until April 2024. 

Following a consultation this summer, Ofgem is now proposing an enduring solution that would ‘levelise’ these standing charges to coincide with the end of that government support. This consultation also sets out proposals to share the costs of bad debt more equally across customers to reduce the premium paid by standard credit customers (those who pay on receipt of a monthly or quarterly bill for the exact amount of energy used). 

Under the terms of the regulator’s proposal, this would save PPM customers around £50 a year, reduce Standard Credit bills by around £45 a year but add around £20 a year for direct debit customers. Ofgem is keen to hear views on this proposal from all interested parties.    

This follows the launch of a wider conversation on the issue of standing charges last week and how they should be set, which has already attracted a high number of responses in the first week of the consultation. 

In response to today’s Ofgem energy price cap announcement, Joanna Elson CBE, Chief Executive of Independent Age said: ““Today’s energy price cap announcement offers little reassurance for older people in financial hardship, with bills still 85% higher than before the energy crisis.  

“We speak to people in later life who are living in one room because they can’t afford to properly heat their home, those who risk falls because they aren’t turning on the lights, and older people who are in thousands of pounds of debt to energy suppliers. They urgently need help.  

“With average energy prices having close to doubled in recent years, coupled with rocketing household costs such as water, food and broadband, those on a low income have endured several years of sky-high costs from all angles. Older people in financial hardship are especially vulnerable to sharp price increases, as many are on a fixed income. The extra money simply isn’t there. 
 
“The UK Government needs to announce financial support now to help the most financially vulnerable, including those in later life, get through this winter. After that, we need a long-term solution to protect against the impact of continuing high prices, including energy.

“Our evidence shows an energy social tariff would offer more stability to older people on a low income and make sure no one is forced to make dangerous choices. This must be something the UK Government consults on.” 

The next quarterly price cap announcement will be announced in February 2024, covering April – June 2024. 

Ofgem: Further reduction but ‘winter will be tough’

‘MANY FAMILIES WILL STILL STRUGGLE’

Energy regulator Ofgem has today (Friday, 25 August, 2023) announced a further reduction in the energy price cap for the last quarter of 2023 (Oct to Dec).     

The change will bring the average dual-fuel energy bill below £2,000 a year for the first time since April 2022, saving households an average of £151 on the previous quarter.   

From 1 October – 31 December, the cap will be set at an annual level of £1,923 for a dual fuel household paying by direct debit based on the current typical domestic consumption values (TDCV) rate. 

 Direct Debit Prepayment Standard Credit Economy 7 (electricity only Direct Debit) 
July – Sept 2023 cap £2,074 £2,077 £2,211 £1,400 
Oct – Dec 2023 cap £1,923 £1,949 £2,052 £1,298 

The drop, the lowest level since October 2021, reflects further falls in wholesale energy prices, as the market stabilises and suppliers return to a healthier financial position after four years of loss making.   

Ofgem is clear that it expects all suppliers to continue improving customer service, to support their most vulnerable customers and to shore up their financial resilience to prevent the kind of failures we saw two years ago. Ofgem recognises that there is some excellent best practice across the sector but expects this to be the norm with poor practice stamped out. 

Alongside changes to the price cap, Ofgem has also introduced measures to reduce costs for prepayment meter customers and ensure extra support for those facing disconnection from the network.   

The price cap savings – which can be passed on more quickly to customers thanks to the price cap updating quarterly – continues the downward trend since prices peaked at £4,279. However, it remains well above the average before the energy crisis took hold in 2021 and the market remains volatile.   

Jonathan Brearley, Ofgem CEO, said: “It is welcome news that the price cap continues to fall, however, we know people are struggling with the wider cost of living challenges and I can’t offer any certainty that things will ease this winter. 

“That’s why we’ve introduced new measures to support consumers including reducing costs for those on pre-payment meters, and introducing a PPM code of conduct that all suppliers need to meet before they restart installation of any mandatory PPMs.   

“There are signs that the financial outlook for suppliers is stabilising and reasonable profits are returning. With the small additional allowance we’ve made to Earnings Before Interest and Tax (EBIT), this means there should be no excuses for suppliers not to be doing all they can to support their customers this winter, and to reinforce this we’ll be introducing a consumer code of conduct which we will look to have in place by winter.

“This code will ensure there are clear expectations of supplier behaviours especially for their most vulnerable consumers with whom suppliers should be reaching out proactively, with compassion and understanding. There are great examples of suppliers already doing this but I want to see this become the norm in such an essential sector that has such a big impact on people’s lives.” 

Ofgem understands that while suppliers cannot control wholesale prices or fix the wider cost of living pressures hitting their customers, now the market has stabilised, they must continue improving customer service and ensure that support across the board is accessible, responsive and understanding, including giving time to make pay arrangements and directing customers to further support and advice. They must also invest in strengthening their financial resilience to protect consumers against the cost of supplier failure. 

Additionally, while still low by pre-crisis levels, we are starting to see more and more competitive fixed deals coming onto the market and levels of switching are slowly increasing.

With a lower price cap and reasonable profits starting to return, there is an opportunity for this to continue to grow. Anyone considering fixing should weigh up all the facts and consider what is most important to them, whether that’s the lowest price, or the certainty of knowing exactly what they will pay each month.

It’s important customers are comparing fixed deals with the new, lower price cap announced today. Suppliers are expected to ensure they are transparent in releasing all tariff information to enable consumers to make simple comparisons of the deals available to them across the market.  

While the price cap has protected households from the full extent of volatility and surges in wholesale prices over the last two years, it was originally introduced by the Government to protect the minority of consumers who did not switch rather than to cover the vast majority of consumers, as it does now.

It is a blunt tool and in the current market it has costs and as well as benefit. It’s important to look at alternative models to examine whether they could work better with the current volatile market and the move to net zero. 

 Ofgem has also today published:    

  1. A Final Decision to raise the Earnings Before Interest and Tax (EBIT) allowance by £10 per customer per year. Most of this increase is to cover Renewable Obligations ringfencing so that customers’ money is protected in the event of a supplier failure. 
  2. Removal of the temporary RO ringfencing allowance, worth £8 per customer and covered by the additional EBIT costs above  
  3. A new sliding scale for EBIT meaning if prices surge, the EBIT allowance reduces as a percentage preventing suppliers from making excessive cash gains from a high price market  
  4. Final decision on the allowance for additional support credit (ASC) bad debt costs – a new allowance to help ensure some of the most vulnerable consumers remain on supply this winter  
  5. Implementation of UNC840 in the cap, reducing the PPM premium  
  6. Price Cap model technical changes Final Decision  
  7. Levelisation Policy Consultation  

By raising the EBIT allowance, Ofgem is taking the next step in its drive to make the retail energy sector more resilient, as we move into another difficult winter when price volatility remains a risk.  

At the height of the energy crisis around 30 suppliers failed because they did not have enough capital in the reserve to stay in business – and the cost was shared among all energy consumers, adding £83 to bills.  

With suppliers only now starting to recoup a portion of their multi-billion pound losses over the past four years, a small increase in permitted profit margins will allow companies to better cover their costs, attract investment and retain financial stability protecting consumers into the future.  

Raising the EBIT allowance from its current rate of 1.9% to 2.4% from 1 October will involve an average £10 increase in bills per year. £8 of this will cover costs to consumers incurred by an additional requirement of suppliers to ringfence enough funds to cover their Renewable Obligations, protecting consumers from additional costs should a supplier go bust.    

The EBIT rate, which is well within international norms for energy retail profits and lower than most other business sectors in Britain, will also be altered from a ‘flat rate’ to a more flexible model that tracks the price cap level and tapers as low as 1.75% in the event of another price surge in the wholesale market. This would prevent suppliers from making excessive cash profits in a high-cost market. 

Strengthening the commitment to supporting struggling and vulnerable consumers, Ofgem is also reducing the cap for prepayment meter (PPM) customers by £51 per year through an updated approach to calculating the costs of unidentified gas, approved in April this year.  

Using some of the benefit from this change, the regulator is now able to introduce an initial 12-month allowance to cover increased debt costs associated with Additional Support Credit that is offered to PPM customers, often at the point of disconnection. This new allowance will help ensure some of the most vulnerable consumers remain on supply this winter.   

Longer term, Ofgem seeks to permanently end the PPM premium, where prepayment customers are charged more than those who pay by direct debit to cover the additional costs and resources required by suppliers to provide energy via PPM. A consultation is underway with an aim to ‘levelise’ these standing charges by April 2024 to coincide with the end of government support currently in place via the Energy Price Guarantee.  

Morgan Vine, Head of Policy and Influencing at Independent Age said: “Today’s Price Cap announcement offers little comfort to older people living on a low income and struggling to get by.

“Our helpline is continuing to hear from people in later life in financial hardship who have been forced to make sacrifices to pay their bills, including eating one meal a day, washing themselves in freezing cold water, and risking falls by not turning on the lights at night.  

“Gas unit costs are still well over double what they were in winter 2020/21 and electricity unit costs are up by over half. The fixed incomes of older people in financial hardship simply cannot keep up with these increases. Long term solutions to protect the most financially vulnerable from high energy prices are desperately needed. 

“We’re calling on the government to introduce an energy bills social tariff for those in greatest needed, including people over 65 on a low income and those who have high energy consumption due to illness.

“This long term and sustainable solution would offer some protection to people in later life living on low incomes, so they aren’t forced to make dangerous choices now, and as we approach the winter. “

The next quarterly price cap announcement will be in November 2023, covering January – March 2024.   

OFGEM announces latest update to energy price cap

Energy regulator Ofgem has announced its quarterly update to the energy price cap for the period 1 April – 30 June 2023.   

From 1 April the energy price cap will be set at an annual level of £3,280 for a dual fuel household paying by direct debit based on typical consumption, a reduction of almost £1,000 from the current level, of £4,279 which reflects recent falls in wholesale energy prices. 

The £3,280 figure indicates how much consumers on their energy suppliers’ basic tariff would pay if the government’s Energy Price Guarantee (EPG) were not in place.

From 1 April, the government has set the EPG at £3,000 for the typical bill – meaning that consumers will not pay the full level of the energy price cap.

This reduction in the price cap level reflects a significant reduction in the cost of buying and providing energy for customers.  If it continues, it will mean that by the summer, prices paid by consumers will drop for the first time since the global gas crisis took hold more than 18 months ago.

The energy price cap was introduced by the government and has been in place since January 2019, and Ofgem is required to regularly review the level at which it is set. It ensures that an energy supplier can recoup its efficient costs while making sure customers do not pay a higher amount for their energy than they should. The price cap, as set out in law, does this by setting a maximum that suppliers can charge per unit of energy. 

Ofgem CEO Jonathan Brearley said: “Although wholesale prices have fallen, the price cap has not yet fallen below the planned level of the Energy Price Guarantee. This means, that on current policy, bills will rise again in April. I know that, for many households this news will be deeply concerning.

“However, today’s announcement reflects the fundamental shift in the cost of wholesale energy for the first time since the gas crisis began, and while it won’t make an immediate difference to consumers, it’s a sign that some of the immense pressure we’ve seen in the energy markets over the last 18 months may be starting to ease. If the reduction in wholesale prices we’re currently seeing continues, the signs are positive that the price cap will fall again in the summer, potentially bringing bills significantly lower.

“However, prices are unlikely to fall back to the level we saw before the energy crisis. Even with the extensive package of government support that is currently in place, this is a very tough time for many households across Britain.

“Where people are struggling, we urge them to contact their supplier to make sure they are getting all the help and support they are entitled to. We also think that, with bills continuing to be so high, there is a case for examining with urgency the feasibility of a social tariff for customers in the most vulnerable situations.

Ofgem has robust rules in place to help people in vulnerable situations, and suppliers are obliged to offer payment plans and direct customers to available support.

Bill-payers will continue to receive additional support via the EPG until the end of March 2024, as confirmed by the Chancellor on Thursday 17 November 2022. The level of this support is set by Government.     

There is no immediate action for consumers to take as a result of today’s announcement.   

Ofgem continues to protect consumers through its ongoing robust regulation of the market, taking enforcement action where necessary and providing support to those who need it the most.   

The next quarterly price cap update will be on 26 May 2023.

UK Government leaving people to prop up energy bosses’ profits, says STUC

Roz Foyer, STUC General Secretary, stated: “The energy price cap might have fallen today but the callous decisions of the UK Government means most people will be facing higher energy bills from April 1st. Thousands of people are being pushed into poverty and face choosing between a hot meal or a warm home.

“There is no justification for continuing to ask people across the UK to pay the price for energy companies billions of profit. We need to take back control of our energy system, tax these companies properly, and end the outrageous injustice of rising energy bills.”

Prepayment meter outrage: Shapps acts to address forced installations

  • Business Secretary gives energy suppliers deadline to urgently report back on remedial action for customers who faced wrongful installations
  • This follows damning reports earlier this week highlighting what appear to be breaches of rules and regulations to protect vulnerable households
  • Energy regulator Ofgem also asked to toughen up their investigations after they failed to find serious failings by British Gas

Business and Energy Secretary Grant Shapps has today given energy bosses a deadline of Tuesday to report back to him on what remedial action – such as providing compensation – they plan to take should they have wrongfully installed prepayment meters in the homes of vulnerable customers.

It comes in the wake of British Gas admitting fault as a result of the Times investigation which showed even those with small children or medical conditions have not been shown forbearance, with reports of debt collectors breaking into homes to install the equipment.

But these findings by The Times newspaper follow several reviews by Ofgem of the services provided by energy suppliers, which have not identified this unacceptable behaviour – or other significant shortcomings – and have in some cases even given companies a clean bill of health.

Therefore the Business Secretary has today told Ofgem to toughen up on energy suppliers and investigate the customers’ experience of how their supplier is performing.

He called on the regulator to set up a new customer reporting system for households to pass on their own stories of how they are being treated – especially those who are vulnerable – and not just rely on energy firm bosses to share information with their regulator.

Business and Energy Secretary Grant Shapps said: “ I am appalled that vulnerable customers struggling with their energy bills have had their homes invaded and prepayment meters installed when there is a clear duty on suppliers to provide them with support. They need to refocus their efforts on their consumers, the British public, who are at the receiving end of this abhorrent behaviour.

“ I’m also concerned the regulator is too easily having the wool pulled over their eyes by taking at face value what energy companies are telling them. They need to also listen to customers to make sure this treatment of vulnerable consumers doesn’t happen again.”

News reports across the country have highlighted examples of the forced installation of prepayment meters in the homes of those who are struggling to pay their bills.

The regulator has also been asked to toughen up their reviews, going beyond the company headquarters to find out what is really happening in people’s homes by hearing from them directly and engaging more with charities and other groups that represent consumers.

Currently, energy suppliers are required to provide Ofgem with information to demonstrate how they comply with the rules on supporting vulnerable consumers, on customers struggling to pay and on the fitting of prepayment meters.

The Business Secretary wants to see the voices of consumers and those who champion their needs heard when deciding which energy companies are meeting expectations  – with a customer reporting hotline being just one example we would want the regulator to consider.

On Thursday night a number of suppliers announced they would suspend forced installations after being pushed by Ofgem to pause the practice while they reassure the regulator they’re complying with the rules.

However, just over a week ago the Business Secretary launched a crackdown on the mistreatment of energy users by suppliers, already asking them to voluntarily commit to stopping this practice. He also demanded they share the number of warrants they’ve applied for in recent months and plans to publish the findings.

Earlier this week the Energy and Climate Minister also met British Gas CEO Chris O’Shea and expressed his horror at recent reports. He made it clear this kind of behaviour is unacceptable, especially from such a key and longstanding British company.

He urged Mr O’Shea to take urgent steps to repair the damage done to British Gas’ reputation and urgently come back to him outlining the role he will personally take to fix these cultural issues.

The British Gas boss was also told by the Minister that vulnerable, mistreated customers need to be identified and redress provided. He will be monitoring matters extremely closely to make sure this happens.

Last month the Business Secretary and Energy and Climate Minister called energy suppliers to voluntarily stop force fitting prepayment meters: 

https://twitter.com/grantshapps/status/1617055839788929024

New plan for smart electric vehicle (EV) charging could save consumers up to £1000 a year

  • New plan sets out steps to unlock the potential of smart electric vehicle charging, including allowing motorists to power their homes using the electricity stored in their electric vehicle
  • electric vehicle drivers could save hundreds of pounds each year while cutting emissions by smarter charging of their electric vehicles
  • billpayers without electric vehicles will also benefit from a more sustainable, secure and efficient electricity system
  • projects, including a street lamppost capable of charging electric vehicles and selling power back to the grid, will receive a share of £16 million funding

Electric vehicle consumers are set to benefit from lower energy bills and cheaper motoring thanks to a landmark plan to unlock the potential of smart electric vehicle charging.

The Electric Vehicle Smart Charging Action Plan published today (Tuesday 17 January) by the government and Ofgem, sets out steps being taken to seize on the significant potential of smart charging and make it the preferred method of long duration charging by 2025.

Smart charging harnesses the potential of energy use data and the latest energy innovations to deliver significant benefits for consumers, including allowing motorists to charge electric vehicles when electricity is cheaper or cleaner, allowing consumers to power their home using electricity stored in their electric vehicle, or even sell it back to the grid for profit. It is expected high mileage motorists could save up to £1,000 a year through smarter charging.

And to back this up further, the government has today also announced £16 million funding from the Net Zero Innovation Portfolio (NZIP) for technologies that harness the potential of smart charging, including a smart street lamppost which will enable motorists to access smart charging on the move, and projects that will enable domestic appliances, from heat pumps to electric vehicle charge points and batteries, to integrate into a smarter energy system.

Energy and Climate Minister Graham Stuart said: “We want to make smart charging an easier choice for drivers of electric vehicles, whether that is charging on the driveway, at the workplace, or parked on the street. To do that we need to build new network infrastructure at pace, using the latest available technologies.

“Today’s plan sets out how we will work with Ofgem and industry to kickstart the market for smart charging, which we are backing up with £16 million in innovation funding. This will let people take control of their energy usage, in the most convenient and low-cost way.

Ofgem Director for Strategy and Decarbonisation Neil Kenward said: “As energy regulator, we’re helping create the infrastructure to deliver Britain’s net zero future at the lowest cost to customers.

“This latest innovative plan will help to maximise the benefits of smart charging, offer vital savings to consumers and reduce the overall cost of energy by seizing the opportunities to use batteries to both power homes and fuel the wider grid.”

Today’s announcements build on the major steps already taken by the government to enable smart and flexible electric vehicle charging. As of July 2022, all new charge points sold for private now must have smart functionality and the UK is consulting on a new policy and technical framework to unlock the benefits of domestic smart, flexible energy, and enhance its cybersecurity.

Through the plan, the government will improve publicly available information and evidence on smart charging, support the implementation of robust consumer service standards and ensure private charge points are secure and compatible with the latest energy innovations.

The roll out of intelligent and automated smart charging will deliver a win-win situation for all consumers. Reduced electricity system costs will lower prices for everyone, motorists will pay less for charging their electric vehicle, and the electricity powering electric vehicles will be cleaner and greener.

The government and Ofgem will seek to remove the barriers that currently prevent the full development of a diverse and competitive smart charging market, while making sure the energy system is ready to respond to the upturn in energy demand that electric vehicles will bring.

Among those receiving funding today through the V2X (Vehicle to Everything) Innovation Programme for prototype hardware, software and business models, are:

  • £229,000 to a project led by Otaski Energy Solutions (Gateshead, Tyne and Wear) to develop a smart street lamppost capable of charging electric vehicles and sharing power back to the grid
  • £220,000 to V2X-Flex (Reigate, Surrey), a project led by EV Dot Energy Ltd to develop prototype software and a new business model which will reduce entry barriers for the domestic use of V2X bi-directional chargers to provide energy flexibility services
  • £165,000 to BEVScanV2X (London), a project led by Agile Charging Ltd to develop technology that could overcome battery degradation by creating a cost-effective tool to monitor and advise best approaches to maximise battery life and financial returns from smart charging

Among those receiving funding today through the Interoperable Demand-Side Response (IDSR) Programme, which supports technologies that allow consumers to remotely increase or decrease their energy use to take advantage of when energy is cheaper or more renewables are on the grid, are:

  • £510,000 to Energy Smart Heat Pump (Chertsey, Surrey), a project by Samsung Electronics UK and their project partners Passiv UK to design and develop a technology solution that is able to provide demand side response (DSR) services via Samsung Heat Pumps, giving greater control of their usage on the basis of cost or carbon savings
  • £1.2 million to Smart-DSRFlex (Manchester), a project by Landis & Gyr UK to demonstrate how DSR technology can help to manage a renewables-based electricity grid using the smart meter system
  • £29,000 to Open DSR for All (Manchester), a project by Carbon Co-op to explore the benefits and technical barriers to an accessible approach to domestic DSR, potentially enabling more products being able to offer DSR in future

Depending on tariff, mileage, and charging patterns, smarter charging could save an average driver up to £200, and a high mileage driver up to £1000 a year by delaying the power demand from electric vehicles at peak periods, such as 4pm to 9pm on winter evenings. By helping to efficiently balance when energy is generated and used on the electricity grid, the technology could contribute to reducing electricity prices for consumers across the network.

Delivering the steps set out in the Action Plan will help make smart charging the norm at home and work by 2025. It is the ambition that in the late 2020s smart charging will also become more commonplace at long-duration public charging, such as on-street or at transport hubs.

Energy price cap rises by 80%

Energy price hikes will cause ‘stress, anxiety, illness, debt and death’

Today (26 August) Ofgem has announced the energy price cap will increase to £3,549 per year for dual fuel for an average household from 1 October 2022.  

This comes as Ofgem’s CEO warns of the hardship energy prices will cause this winter and urges the incoming Prime Minister and new cabinet to provide an additional and urgent response to continued surging energy prices.  

The new price cap level is based on a transparent methodology and calculations by Ofgem. The data is published on the Default tariff cap level: 1 October 2022 to 31 December 2022 publication.

The increase reflects the continued rise in global wholesale gas prices, which began to surge as the world unlocked from the Covid pandemic and have been driven still higher to record levels by Russia slowly switching off gas supplies to Europe.  

The price cap, as set out in law, puts a maximum per unit price on energy that reflects what it costs to buy energy on the wholesale market and supply it to our homes. It also sets a strict and modest profit rate that suppliers can make from domestic energy sales. However, unlike energy producers and extractors, most domestic suppliers are currently not making a profit.

The price cap protects against the so called ‘loyalty premium’ where customers who do not move suppliers or switch to better deals can end up paying far more than others. Ultimately, the price cap cannot be set below the true cost of buying and supplying energy to our homes and so the rising costs of energy are reflected in it.  

Although Ofgem is not giving price cap projections for January because the market remains too volatile, the market for gas in Winter means that prices could get significantly worse through 2023.

Jonathan Brearley, CEO of Ofgem, said: “We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make. I talk to customers regularly and I know that today’s news will be very worrying for many.  

“The price of energy has reached record levels driven by an aggressive economic act by the Russian state. They have slowly and deliberately turned off the gas supplies to Europe causing harm to our households, businesses and wider economy. Ofgem has no choice but to reflect these cost increases in the price cap.

“The Government support package is delivering help right now, but it’s clear the new Prime Minister will need to act further to tackle the impact of the price rises that are coming in October and next year.

“We are working with ministers, consumer groups and industry on a set of options for the incoming Prime Minister that will require urgent action. The response will need to match the scale of the crisis we have before us. With the right support in place and with regulator, government, industry and consumers working together, we can find a way through this.”   

Ofgem will continue to work with government, consumers groups, charities and suppliers, in supporting any new package of help or measures to ease the crisis.

Ofgem has also today strengthened the rules around direct debits to ensure suppliers set them at the right level, meaning that customers only pay exactly what they need to. The changes will stop suppliers from building up excessive customer credit balances and using them in a risky way as working capital.

Ofgem’s clear role is to protect consumers, and it has also today:

  • Strengthened requirements for suppliers to have sufficient control over the key assets they use to run their businesses. Together, this and the direct debit rule changes build on existing requirements to boost supplier resilience to better protect customers from costs associated with supplier failures.
  • Extended the Market Stabilisation Charge (MSC), which is paid by suppliers and helps protect customers from the cost of supplier failure.
  • Extended the ban on acquisition only tariffs which ensures all energy tariffs are available to existing as well as new customers, ensuring all consumers can get a fair deal on their energy.
  • Launched a review into the mechanism and level of profit margin available under the price cap to ensure that suppliers do not earn excessive profits and receive only a fair return for the services they provide to customers.

The new price cap level will take effect from 1 October 2022, but it is possible some suppliers may begin increasing direct debits before this date to spread costs. Customers worried about when their direct debit will increase should contact their supplier. Any money taken from customers to build up a credit will only ever be spent on their energy supply and customers can ask for their credit balance to be returned at any time.  

Anyone worried about paying their bill should contact their supplier in the first instance. They are obliged to discuss payment plans and direct customers to government and third sector support where available. Ofgem is tightly monitoring suppliers’ performance in this area and has told all suppliers now is the time to step up their support for customers, especially those on low incomes or in a vulnerable situation.  

Ofgem continues to monitor the impact of the price cap and to work with stakeholders and government on what more can be done for those least able to pay but most in need of energy.

When the new Prime Minister announces what additional support packages will be available, Ofgem will continue to examine how best it can help those groups of people that need it the most.  

Reacting to today’s announcement by Ofgem, Poverty Alliance director Peter Kelly said: “The first moral duty of government is to protect people and provide them with security. The UK Government and Ofgem are failing badly in that duty and acting without any sense of compassion and justice.

“This massive price hike is in line with predictions. Ministers knew this was coming for months but have put nothing in place to prevent a humanitarian disaster.

“We must be clear. Bills of this size will be completely and utterly unaffordable for people on low incomes, many of whom have already been struggling with cuts to social security and huge wage squeeze for years and years. They will cause stress, anxiety, illness, debt and death.

“The UK Government must act now. It is simply not right that they continue to dither – prices must be frozen and targeted support must be put in place to help those most in need.”

Chancellor of the Exchequer, Nadhim Zahawi said: “I know the energy price cap announcement this morning will cause stress and anxiety for many people, but help is coming with £400 off energy bills for all, the second instalment of a £650 payment for vulnerable households, and £300 for all pensioners.

“While Putin is driving up energy prices in revenge for our support of Ukraine’s brave struggle for freedom, I am working flat out to develop options for further support. This will mean the incoming Prime Minister can hit the ground running and deliver support to those who need it most, as soon as possible.”

He later told the public to cut back their energy consumption – this from the man who once claimed parliamentary expenses for heating his stables!

This morning, Ofgem announced that the energy price cap will rise by 80%, taking typical household bills from £1,971 a year to £3,549 a year on 1 October.

People will rightly be worried by these huge price hikes. These eye-watering increases will simply be unaffordable for households up and down the country.

We’re demanding the government increase its support package for every household to at least £1,000, with extra support for the most financially vulnerable, or risk pushing millions of households into financial distress this winter. We also expect energy suppliers to ensure their customer service centres are adequately resourced to resolve queries quickly and help those struggling to pay their bills.

Are you concerned what the price cap rise could mean for you? Find out more about today’s news and use our tool to calculate what the price cap rise means for your own payments.

THE Government needs to spend £100 billion to freeze household energy prices for a year, according to an industry expert. Derek Lickorish, chairman of retailer Utilita Energy, told GB News: “Back in the banking crisis, Gordon Brown found £500 billion pounds to stop the banks falling apart and I’m advocating that we’re looking at about £100 billion to freeze prices for one year.

“At the moment, we don’t know what Liz Truss is bringing to the party and we don’t know whether it’s going to meet the size of the gap.

“While we have a price cap , when we get to the first of January, that figure is going to have a five in front of it, and it’s going to be another couple of thousand pounds and people cannot possibly afford to pay that amount of money for their energy bill.”

Speaking to Alastair Stewart on GB News, he added: “I think the area that needs to be looked at quite closely is the market structure, in terms of the way electricity is bought and sold, and I know there are plans to look at this now with some urgency.

“But you have a situation where you’re bringing on to the network power that has been effectively subsidised by the renewables obligation, yet they are getting these huge prices in terms of generation because the market price is set by gas.

“The wind doesn’t cost any more. The sun doesn’t cost any more. But these schemes are making an awful lot of money. 

“To be fair, that’s about solutions that were brought in prior to 2017, so there was a change so that renewable projects from 2017 would get the price that they agreed.”

Asked to make a final point, Mr Lickorish said: “I want the Government to tell us what’s happening and it needs to be a very, very big number that we need to know now.

John Redwood MP, who has been tipped for a post in a new administration, suggested that VAT on energy will be scrapped for businesses when a new Prime Minister is in place.

“Cancelling VAT on fuel, at least temporarily while fuel costs are elevated, is a serious runner and any new government team will want to look at that,” he told Liam Halligan on GB News.

“I certainly agree with you that there are a lot of businesses under a lot of pressure and I think that must be part of a comprehensive package to explain to industry what help might become available.

“And what can be done about the excessive fuel bills that will directly now lead to some closures, as we’ve heard recently.”

Commenting on the energy price cap rise announced today, Crispin Truman, chief executive of CPRE, the countryside charity, said:  ‘This winter’s energy bills are a ticking time bomb threatening to blow apart household finances.

“Rural areas, where wages are lower and homes often cost more to heat, will be devastated if the full force of the price rises are felt by consumers. The government must step in to prevent those living in the countryside from having to choose between eating and heating this winter. 

‘We’ve been here before in the pandemic – the country is entering a national crisis that requires an emergency response. Ministers must urgently put in place direct financial support to get people through the winter, while working to deliver the only viable long term solution – improving the energy efficiency of our homes. 

‘In addition to stratospheric energy bills, the cost of living crisis is being driven by a lack of housing and soaring rents for millions in the private rented sector. Homelessness is rising as half a million people languish on social housing waiting lists. In the Eden district of Cumbria, homelessness rates are more than four times what they were in early 2020. 

‘Twiddling with taxes won’t cut it. To ease the cost of living crisis the government needs to provide immediate monetary support. To prevent a generation of rolling winter crises, we need to get off gas and rapidly invest in home insulation and cheap renewable energy. A longer term fix must also include providing many more social and affordable homes.’