Energy bills: price cap to jump by £100 this winter

Rising wholesale prices mean that energy bills are set to jump.

Most of us have had to accept paying a little more for our energy over the last 12 months.

Simply because we’ve spent so much time at home, rather than out at work or socialising, we've inevitably used more energy than usual, and with it that has meant more money heading to our suppliers.

What’s more, new research suggests that we should expect our bills to get more expensive this year, even as the nation (hopefully) returns to something like normal.

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Rising costs

Cornwall Insight, a research firm that looks specifically into the energy and water sectors, reckons there’s more unpleasant news on the way when it comes to our energy bills.

It has forecast that the energy price cap is set to be hiked to around £1,250 per year for typical dual fuel customers by the winter, an increase of more than £100 from its current level of £1,138.

This is down to rocketing wholesale energy costs, which the firm said has hit heights not seen since the ‘Beast from the East’ storms back in 2018.

There are all sorts of different factors behind this according to Cornwall Insight, from carbon prices more than doubling over the past year, to a sharp jump in gas prices off the back of low levels of gas in storage facilities.

Throw in some prolonged outages from several ageing fossil fuel and nuclear plants, and you have a recipe for guaranteed wholesale price rises.

And since wholesale prices are a fundamental part of how Ofgem sets the price cap, those rising costs seem set to feed into higher energy bills.

Hiking the energy price cap

It’s worth noting that the energy price cap has already been increased once this year.

In April it jumped to £1,138, an increase of £96.

This was down to both increases in wholesale energy prices, as well as the fact that a lot of energy suppliers have had to let customers off paying their bills for a while due to the impacts of the pandemic, and so themselves may be feeling the hurt financially.

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Avoiding the energy cap

There is a very simple way to ensure that changes to the energy price cap don’t impact you, and that’s to sign up to a fixed or variable tariff.

The energy price cap only applies to default tariffs, also known as standard tariffs. These are the deals you move onto after your initial tariff finishes after a year or so, and to put it politely, they are absolute rubbish.

These are the tariffs that are impacted by the price rises periodically announced by energy suppliers.

And they had become so costly ‒ and therefore such moneyspinners for suppliers ‒ that Ofgem was tasked with establishing the energy price cap, which limits just how much suppliers are allowed to charge.

While it’s been effective in limiting how much households on default tariffs get ripped off, it doesn’t change the fact that you’ll be much better off if you take the time to shop around and find a new deal every year or so.

According to the latest Ofgem stats, while the average default tariff charges £1,138 per year, while the average of the cheapest handful of tariffs would see the typical household pay £921 per year.

That’s not exactly a small difference ‒ an extra £200 in your pocket per year.

The reality is that those steeper wholesale prices will find their way into the fixed tariffs too, of course.

Best of all, you don’t even have to do it yourself.

There are now all sorts of different energy-switching services that will not only help you find a cheap deal today, but will then monitor the market on your behalf and move you automatically to a new fixed tariff every year or so, ensuring that you never end up on a standard tariff.