UK vitality payments to rise from April beneath Ofgem cap

February 25, 2025

Many households will see their vitality payments rise by £111 to £1,849 yearly. This enhance applies to the three months to July when the cap will likely be reviewed once more.

Business regulator the Workplace of Fuel and Electrical energy Markets (Ofgem) has attributed the rise to a scarcity of renewable vitality and better wholesale costs, pushed by chilly climate. These components have led to a rise within the cap on fuel and electrical energy charges.

Ofgem opinions the cap each few months, limiting the tariffs vitality suppliers can cost households on default or commonplace variable contracts.

The newest adjustment was in January, when Ofgem raised the cap by 1.2 per cent, growing it to the equal of £1,738 a 12 months for these paying by direct debit. This rise adopted a spell of frigid temperatures throughout Europe, depleting fuel reserves and driving market costs greater.

Ofgem says 11 million clients are on mounted contracts and won’t be affected by the worth cap adjustment.

Households are struggling to handle family payments

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Jonathan Brearley, CEO of Ofgem, acknowledged the influence of the rise, stating: “We all know that no worth enhance is ever welcome and that the price of vitality stays a major problem for a lot of households.

“However our reliance on worldwide fuel markets leads to unstable wholesale costs, which proceed to drive up payments. That’s why it’s extra necessary than ever to speed up funding in a cleaner, homegrown [energy] system.”

Right here’s all the pieces you’ll want to learn about who units the vitality worth cap and the way it works.

What’s Ofgem and what’s the vitality worth cap?

Ofgem is the unbiased regulator of the British vitality market, liable for defending shoppers. A key a part of its position is setting a worth cap — a restrict on what vitality companies can cost clients on default or commonplace variable tariffs.

The Authorities launched the vitality worth cap, which Ofgem oversees, in January 2019. Though initially meant as a short lived measure, it has remained in place.

The cap is a regulatory mechanism to stop vitality suppliers from overcharging clients on default or commonplace variable tariffs. It goals to guard shoppers, notably those that don’t often change suppliers to safe higher offers.

The cap applies if you’re on a default vitality tariff, whether or not you pay through direct debit, commonplace credit score, or a prepayment meter. Nonetheless, it doesn’t apply to fixed-term tariffs.

Traditionally, variable tariffs had been costlier than fixed-rate offers, and many shoppers remained on them as a result of they failed to modify suppliers when their fixed-term contract ended or their provider ceased buying and selling.

Nonetheless, fixed-term tariffs are sometimes costlier than the worth cap, affecting most clients..

In August 2022, Ofgem mentioned: “The worldwide rises we’re seeing in fuel costs imply this can be a very difficult time. Proper now, this may occasionally imply you discover few better-value tariffs than being on a provider’s default charge coated by the Authorities’s vitality worth cap, if you’re already on one.”

How does the vitality worth cap work?

The cap limits the utmost quantity vitality suppliers can cost per unit of fuel or electrical energy for purchasers on default tariffs. Nonetheless, it doesn’t cap whole payments — the extra vitality you employ, the extra you pay.

It additionally features a most every day standing cost, which covers the mounted price of supplying vitality to your property.

The cap is reviewed often and relies on wholesale vitality costs, community prices, working bills, coverage prices, VAT, and provider margins. The particular quantity varies relying in your cost technique, comparable to direct debit, pay-on-receipt, or prepayment.

How is that this completely different from the vitality worth assure?

The EPG, which capped the everyday annual family vitality invoice at £2,500, ended on March 31, 2024. Since then, costs have been decided by Ofgem’s vitality worth cap, which was reintroduced on July 1, 2023.

The cap limits the quantity suppliers can cost per vitality unit (measured in pence per kilowatt-hour, or p/kWh). It units a most every day standing cost — the mounted price of being linked to the vitality community.

As talked about, the common family invoice will enhance from April 1, following a 1.2 per cent worth rise in January.

For electrical energy, the worth cap will rise from 25p to 27p per kWh, with the every day standing cost reducing from 61p to 54p.

Fuel costs will enhance from 6.34p to six.99p per kWh, whereas the standing cost will rise barely from 31.65p to 32.67p.

What assistance is there for those who’re struggling?

If you happen to can not pay your vitality invoice, your supplier will normally work with you to rearrange a cost plan tailor-made to your scenario.

Moreover, the Authorities is consulting on a Debt Aid Scheme. This permits suppliers to put in writing off unmanageable debt or help with reimbursement by a “debt-matching” scheme, the place suppliers match buyer funds.

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UK vitality payments to rise from April beneath Ofgem cap

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