The default energy price cap is set to increase by £96 from 1 April 2021, returning to pre-pandemic levels to reflect rising wholesale prices.
Ofgem has announced that the price cap will increase to £1,138, up from £1,042 for the six month period starting the 1 October 2020.
The price cap was lowered by £84 in October in response to changes in the wholesale energy price brought about by the COVID-19 pandemic and following lockdown.
With wholesale prices having bounced back due to energy demand returning to broadly normal levels, Ofgem has increase the cap to £1,138 for 11 million default tariff customers, as well as increasing it to £1,156 – a jump of £87 – for four million pre-payment meter customers.
As well as the wholesale energy price increase, the £96 jump includes the £23.69 Adjustment Allowance announced by the regulator earlier this week. This is an additional cost designed to allow suppliers to recoup some of their losses from bad debt, which has increased as a result of higher levels of unemployment due to the pandemic.
Jonathan Brearley, chief executive of Ofgem, said that increases in bills were never welcome, but particularly in light of many households struggling financially due to the pandemic.
“The price cap offers a safety net against poor pricing practices, saving customers up to £100 a year, but if they want to avoid the increase in April they should shop around for a cheaper deal.
“As the UK still faces challenges around COVID-19, during this exceptional time I expect suppliers to set their prices competitively, treat all customers fairly and ensure that any household in financial distress is given access to the support they need.”
While the increase is unlikely to be welcome, it is unsurprising given the announcement about the Adjustent Allowance and the rebounding of the wholesale prices, said Robert Buckley, head of relationship development at Cornwall Insight.
“April Electricity Baseload prices have risen 16% from 1 December to present, with prices this period generally trending higher supported by continued cold weather and higher demand levels, despite lockdown restrictions,” he explained.
“If wholesale price levels are maintained through the summer, early predictions from Cornwall Insight show that the Winter 2021-22 cap could see a further increase of approximately £14, assuming that the £23.69 Summer 2021 adjustment allowance is not carried on into next winter."