Energy regulator Ofgem has announced a 6.4% increase of the energy price cap for the period covering April to June this year.
The price cap – which sets a maximum rate per unit and standing charge that can be billed to customers for their energy use – will rise by £111 for an average household per year, or around £9.25 a month, over the three-month period of the price cap.
The increase, caused primarily by a spike in wholesale prices, follows the price cap for the current period raising 1.2% on the one preceding. As well as wholesale price increases, Ofgem attributes the price cap rise to a small increase in policy costs and associated inflationary pressures.
Since its last price cap announcement in November 2024, Ofgem says 4 million customers have moved to a fixed tariff, bringing the total number of consumers on a fixed deal, thus unaffected by the price cap, to 11 million. This is the largest movement of customers to fixed deals since the energy crisis.
Ofgem’s CEO, Jonathan Brearley, acknowledged the “challenge” of the cost of energy for many households, “but our reliance on international gas markets leads to volatile wholesale prices, and continues to drive up bills, which is why it’s more important than ever that we’re driving forward investment in a cleaner, homegrown system”.
Mohamed Gaafar, CEO and co-founder of residential solar provider GRYD Energy, echoed this, saying: “Brits have been caught in the volatility of the global energy markets for years now, causing financial distress or insecurity for too many. The government must step up its game and adopt longer term thinking to get the UK out of this cycle.
“We need to see the government hold true to its promise and put serious investment behind helping homeowners to become energy independent.”
Government to provide ‘extra’ energy bill support
In response to the increased energy price cap, the UK government has opened a consultation on expanding the warm homes discount, which gives eligible households £150 off their energy bills.
The scheme expansion would make an additional 2.7 million households eligible, bringing the total number of households that would receive the discount next winter up to about 6.1 million.
Energy secretary Ed Miliband commented: “This Government is determined to do everything we can to protect people from the grip of fossil fuel markets. Expanding the Warm Home Discount can help protect millions of families from rising energy bills, offering support to consumers across the country.”
The government also stated its support for Ofgem’s plans to establish an energy debt relief scheme, first consulted on last year. It would see suppliers either write off debt that is so significant it would never be paid back or help pay off debt by ‘debt matching’ customer payments.
The debt relief scheme would form part of a wider package of measures supported by the proposed expansion of the warm homes discount.
Brearley said: “We welcome the government’s support for these plans, and their plans to expand the Warm Home Discount, which will also offer financial help to nearly three million more households that need it most.”
Zonal pricing debate rages on
Ofgem also announced that from 1 April, Britain’s standing charges will reduce for most households, although regional variation remains. Some households will thus see a small increase in standing charges up to £20 per year, due to changes in network costs—the price paid to transport energy around the country.
A report released by Octopus Energy to coincide with the price cap announcement suggests that zonal pricing, suggested as part of the ongoing review of electricity market arrangements (REMA), could save customers between £55-£74 billion by 2050 on electricity bills.
Octopus commissioned the report from FTI Consulting, which carried out similar research for Ofgem in 2023. The estimated bill savings have increased since then, with the new report finding that customers could save an average of £3.7 billion a year in a zonal market.
Octopus Energy Group founder Greg Jackson commented: “Zonal unlocks massive savings by encouraging energy to be used nearer to where it’s produced, and at those times it is plentiful, rather than wasted.
“With the potential to ease any burdens in infrastructure delays, the government can embrace a modern system that delivers cheaper, fairer energy while also protecting us from shocks further down the line. The evidence is overwhelming – zonal pricing is the way forward, and we need action now.”
On the other end, deputy CEO of RenewableUK Jane Cooper argues that regional or zonal electricity pricing is likely to lead to higher bills for households and businesses in England and Wales.
Cooper explained: “The uncertainty and risks created by zonal pricing would be priced in by developers bidding into clean energy auctions and would drive up the cost of building vital new projects, potentially stalling development.”
RenewableUK, the trade association for wind power, wave power and tidal power industries, supported an open letter following up on one sent to the energy secretary and business and trade secretary Jonathan Reynolds.
The signatories are calling for the government to rule out zonal pricing and commit to a reformed national market programme, which they say would best support clean power and the energy intensive industries that will help deliver it.
