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Ofgem confirms price cap to be set quarterly

Cornwall Insight now predicts that the price cap will hit £3,359 in October and then £3,616 in January.

Cornwall Insight now predicts that the price cap will hit £3,359 in October and then £3,616 in January.

Ofgem has confirmed that the Default Tariff Price Cap will now be set quarterly, to better reflect the costs of the wholesale market.

The regulator first proposed the change back in May, as it looked for ways to bolster the market following a period of significant volatility.

High wholesale prices over the second half of 2021 and into the beginning of 2022 has led to nearly 30 suppliers collapsing, along with Bulb entering Special Administration, since September.

The estimated cost of these failures is expected to add £4.6 billion - or £164 per household - to customers’ bills.

While the price cap jumped by 54% in April, allowing suppliers to recoup more of the cost of energy from their customers, power prices driven by the volatile international gas market have continued to surge throughout the year.

This has been impacted by Russia’s invasion of Ukraine and the insecurity around the gas market this has created, with concerns for the impact of high bills and energy security over winter continuing to grow.

The change to a quarterly price cap is designed to increase the stability of the market, according to Ofgem, helping to reduce the risk of supplier failures by ensuring they can recoup the cost of increased wholesale power prices.

“I know this situation is deeply worrying for many people,” said Jonathan Brearley, CEO of Ofgem.

“As a result of Russia’s actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before. And that means the cost of supplying electricity and gas to homes has increased considerably.

“The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now. Today’s changes ensure the price cap does its job, making sure customers are only paying the real cost of their energy, but also, that it can adapt to the current volatile market.”

Cornwall Insight now predicts that the price cap will hit £3,359 in October and then £3,616 in January. In its most recent analysis, it also highlighted the longevity of the high power prices, with its analysis predicting that the cap will stay above £3,000 a year for the next 15 months.

To help manage the dramatic increases to bills, the government is providing £400 of support to households, funded in part by a 25% windfall tax on oil and gas companies. This will be added by suppliers directly to consumers accounts, and spread across six months from October.

However, charities and organisations are calling on the government to do more to help manage the increase, given the millions of households predicted to end up in fuel poverty.

“We will keep working closely with the Government, consumer groups and with energy companies on what further support can be provided to help with these higher prices,” added Brearley.

Ofgem is set to announce the new price cap at the end of August.


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