Households Face Possible Energy Price Increase of £80
The Covid-19 pandemic has been extremely challenging for everyone. Many households have seen their income reduced through layoffs, reduced hours, and more. This has made it very difficult to take care of household expenses, including energy costs.
Ofgem Considering COVID-19 & Regular Increase to Price Cap
Ofgem, the energy regulator, is proposing a £21 increase to the price cap between 1 April and 30 September 2021, which will be based on typical usage. This increase is specifically to be applied to the financial woe’s energy suppliers have suffered during the coronavirus pandemic. However, this comes at a time when many households are not able to pay their energy bills due to the pandemic and are now in debt to their energy suppliers.
Not only that, but the Covid-19 energy increase will come on top of other changes that could be made to the amount energy suppliers can charge customers on their default rates.
Current Cap & Possible Increases
Currently, the price cap is set at £1,042 and runs from October 2020 to March 2021. This covers both gas and electricity. Ofgem reviews the price cap every six months. However, many experts have already expected that an increase in the cap was expected in February. The new price cap will take effect in April 2021.
With the COVID-19 cap of £21, the price cap would rise to £1,063 for a household with typical usage and pays for energy (gas and electric) by direct deposit.
However, energy experts have stated they were expecting the price cap to increase by £63, which means that the total price cap increase could be as much as £1,126 (£21 + £63 + £1,042) for the typical user.
On the other hand, Uswitch currently shows 12-month deals for £821.40, which is considerably lower than even the current price cap.
Reasons for the Price Cap Increase
For the past three Ofgem reviews, energy prices have gone down, while wholesale energy prices have gone back up from the lows they hit earlier in the year. Demand for fuel hit rock bottom due to the pandemic.
Energy businesses have also been hit by a high level of households that are not able to pay their energy bills due to the pandemic.
Many of the country’s large energy companies are being forced to lay off thousands of workers due to Covid.
For these reasons, Ofgem is considering the £21 Covid price increase to make it easier on energy companies struggling with the pandemic. The increase would help cover about £200 million of bad debt that customers have incurred.
Ofgem will be in consultation on the proposed increase to the price cap until December 21, and they will share their decision in February before making an announcement on the new price cap.
Proposed Price Cap Increase Causes Outrage
Octopus Energy chief executive Greg Jackson said, “Legacy suppliers charge long-standing customers hundreds of pounds more than new customers. If they care about customers, they could handle Covid debt by reducing this disparity, rather than exacerbating it by lobbying for a hike in the price cap.
“Ofgem’s single biggest success of the last decade has been the price cap – saving billions for customers and finally forcing dinosaur companies to become more efficient. They should resist all attempts to undermine it.”
Cat Hobbs, the director of the campaign group We Own It, which wants to nationalize the energy supply, said, “These proposals from Ofgem are absolutely shocking. The idea that at a time when millions of people are struggling to pay their bills, the solution would be to charge people, even more, is farcical.”
Many households are also shocked by the regulator’s consideration of a Covid increase to the energy price cap.
Just the Same as Other Industries
Emma Pinchbeck, chief executive of trade body Energy UK, said, “Just like every other business, there have been challenges from the pandemic. It is the independent regulator’s job to hear views, look at the evidence, and weigh up how to support energy retailers through their own commercial difficulties in the pandemic so that they can continue to supply and support all customers.”
Does Switching Now Make Sense?
Yes, in fact, if you’ve not considered switching before, the price cap increase may be just the motivation needed to make the switch now. Switching energy suppliers now could save you £100s. If you’re on a capped standard variable tariff, you don’t have to worry about exit fees. You can switch at any time without facing a penalty.
It’s not certain exactly how much the price gap may increase. However, if you’re still on a default tariff, now’s the best time to switch energy suppliers rather than waiting for your energy bills to hit the roof.
Check out some price comparison sites to find the best deals today!