Energy price cap to change every three months under new plans – and prices WILL rise in October

THE ENERGY price cap could be changed every three months under new plans – and the regulator has warned that prices WILL go up again in October.

The price cap limits how much energy firms can charge customers. It is currently reviewed every six months – but it could be updated twice as often under new plans announced by Ofgem today.

The proposals would mean more frequent updates to the upper limit of what energy suppliers can charge customers on a variable dual-fuel rate.

The regulator said the move would help reflect the most up to date and accurate wholesale prices.

It said that if prices were to fall from their current highs, then that would be passed on to customers more quickly, reducing their bills.

Currently the price cap is reviewed twice a year, in April and October.

Last month it soared 54%, bringing the average annual household energy bill to £1,971.

It will remain at this level until at least October – even if wholesale prices were to plummet.

Ofgem said updating the price cap FOUR times a year instead would mean the prices that households pay for their energy would more accurately reflect wholesale prices.

But it could also work against consumers – if prices rise further, then these increases will be passed on more quickly and households will see their bills go up.

Jonathan Brearley, CEO of Ofgem, said: “Our top priority is to protect consumers by ensuring a fair and resilient energy market that works for everyone.

“Today’s proposed change would mean the price cap is more reflective of current market prices and any price falls would be delivered more quickly to consumers.”

Ofgem says the change could take place from October this year.

Nothing has been confirmed yet, but discussions are due to take place between now and mid-June.

Ofgem said the change could mean that suppliers are able to better predict how much energy they need to purchase in the first place, reducing the risk of more providers going bust.

More than 30 firms have folded in the past year due to pressures to keep up with the rising costs.

Money expert, Martin Lewis, branded the changes a “disaster” in a sent out shortly after the announcement today though.

Martin’s anger came over proposals at the same time regarding the market stabilisation charge (MSC).

The MSC means that suppliers which attract new customers must pay compensation to the company they switch away from if wholesale prices fall.

But the money mogul said: “If wholesale prices fall and a new firm gets a switcher, it must pay 85% of difference to old firm. Killing hopes of firms launching cheaper deals.”

The price cap was created by Ofgem in January 2019 to help make sure customers weren’t being overcharged.

While it was only supposed to be in place until 2023, the regulator has now said it will be extended beyond that date.

What does it mean for energy bills this year?

Energy bills will go up later on this year.

Over the past year, global wholesale prices have increased significantly so the cap is expected to match this.

Forecasts from Cornwall Insight suggest that the cap could reach £2,595 in October.

That means bills will go up another £600 for most households.

Experts are hopeful that prices won’t keep rising for much longer though, and expect the price cap to fall when it is reviewed next April.

Cornwall Insight’s latest forecast is that the price cap will edge down to £2,292 next summer.

This will depend on a number of factors though, including the ongoing Russia/Ukraine crisis, whether more providers collapse, and general supply and demand.

If the price cap is reviewed four times a year, instead of twice, it could mean that households see less dramatic changes in their bills each time.

The government announced a £200 rebate earlier in the year to help customers with the rising costs on the way.

It will be applied in October but customers will have to repay the discount in instalments from 2022, as the government itself predicts the rocketing price turmoil to die down by then too.

Thousands of households are already receiving council tax rebates of £150 to help cope with rising costs too.

If you’re struggling with energy bills, you might qualify for a grant from an energy provider hardship fund.

It is also worth finding out what help your local council is offering through the Household Support Fund, to see if you could get some extra cash to cover essentials.