Ofgem price cap announcement
Information taken from Ofgem press release here.
At the beginning of February, Ofgem, the UK’s electricity and natural gas industry regulator, announced that the energy price cap will rise by 54% on 1st April 2022. The price cap is a maximum mount that can be charged for electricity and gas standing charges and unit (kWh) rates.
The price cap affects anyone who is on a variable tariff. This is likely to be you if your supplier has stopped trading, you have just moved home or if your previous fixed tariff has come to an end. There are roughly 22 million people on this cap.
You can ask you supplier or check your latest bill to see what tariff you are on.
What does this mean?
The price cap dictates how much energy suppliers can charge per unit of energy used, from October 2021 to April 2022 it stands at:
- Electric 21p per unit
- Gas 4p per unit
From 1st April 2022 there will be a 54% increase which will bring the price per unit to:
- Electric 28p per unit
- Gas 7p per unit
The standing charges for electric will also increase from 25p to 45p. This is where Ofgem's scary figure of £2000 a year for the average household comes from. But just as a reminder, this (£2000) is an average figure, if you use more you pay more and if you use less, you pay less.
Why is this happening?
This is happening for a couple different reasons
- The wind didn’t blow as much as predicted in 2021, meaning we relied more heavily on our gas reserves.
- An upturn in global gas demands as economies have re-opened after the pandemic.
- Winter 2021 was colder than average across Europe, resulting in more gas being used and depleted supplies.
- China have been moving from coal power plants to gas turbines, putting higher demand on Russia for gas (70% of Russia’s exported gas goes to Europe and currently 5% goes to China).
- Since the announcement from Ofgem, Russia’s invasion of the Ukraine has pushed wholesale gas prices even higher. 30% of Europe’s gas comes from Russia.
So, all of these factors mean that gas is in demand and the wholesale price of gas is extremely high. Consequently, our energy market is in chaos. Since January 2021, 29 suppliers have stopped trading, meaning millions of customers have had to be transferred to other suppliers to stop them being disconnected. This costs money and Ofgem have said that some of the price rise includes the costs of transferring customers from supplier to supplier.