Gas and electricity bills will rise tomorrow as the new energy price cap comes into effect.
What really happens on October 1?
The price of gas and electricity is determined by global wholesale prices, which rose after supplies from Russia were cut off in response to the war in Ukraine – and after energy consumption rose again after the pandemic.
The pass-through of these wholesale energy prices to customers is monitored by UK regulator Ofgem in the form of price caps four times a year.
This price cap limits the cost households pay per unit of energy (kilowatt hours) they use.
The ongoing fee, which is the cost of connecting to the national grid, also increases with the price cap, but not by much.
From 1 October they will drop from 45p per day to 46p per day for electricity and from 27p to 28p for gas.
Does the price cap cover everyone?
The price cap only covers domestic households in England, Wales and Scotland.
Traditionally, businesses are not covered by the price cap, but under a separate ‘energy bill relief’ program the government provides additional support to businesses.
You will be included in the tariff cap if you are a dual-energy customer (use the same company for electricity and gas) on a standard variable tariff, which pays by direct debit, credit or prepaid meter.
Standard variable tariffs mean that your energy company can change the unit price at any time – in line with global wholesale prices – but is limited by the price cap.
Fixed rates are agreed annually and mean that the unit price will not change for that year.
These are not included in the price cap, but the government says its energy price guarantee will result in a rebate of 17 pence per kWh for electricity and 4.2 pence per kWh for gas.
They say this will bring fixed rates back to levels similar to the energy price cap.
If you’re locked into an expensive fixed tariff, you can take a meter reading before October 1 to make sure your energy supplier meets the price guarantee reduction.
Price caps don’t mean energy costs just £2,500 a year
The government estimates the new price cap will cause average annual energy bills to rise from £1,971 to £2,500.
But that doesn’t mean people won’t be charged over £2,500 a year for their energy – this is just an estimate for a typical household.
According to Ofgem, a typical household in Britain has 2.4 people living there – who use 242 kWh of electricity and 1,000 kWh of gas per month.
But every household is different – and their energy use will depend on how many people live there, what time of day they use the most energy, and how energy-efficient their home is.
- For example, the government estimates that if you live in a purpose-built apartment your average bill will be £1,750.
- If you live in a terraced house it will be around £2,350.
- Those living in semi-detached houses will pay around £2,650 a year.
- And individual properties will pay around £3,300 a year.