Energy prices are set to increase this winter following the announcement of a new price cap by Ofgem. The average annual household energy bill is expected to rise by 0.2% starting in January, contrary to previous forecasts of a decrease. For households with average energy consumption paying by direct debit, the yearly bill is estimated to increase from £1,755 to £1,758. Meanwhile, those using pre-payment meters will see their annual bill go up from £1,707 to £1,711, and those paying upon receipt of the bill will experience a rise from £1,890 to £1,894.
Although the new price cap is 2% or £37 lower compared to the previous period, energy bills remain significantly higher than before. Ofgem attributes the price cap increase to government policy costs and operating expenses related to projects such as Sizewell C nuclear plant and the Warm Home Discount scheme. The regulator emphasized that while wholesale prices have stabilized and even decreased by 4% in the past three months, the energy market remains volatile.
The price cap, which limits the charges for gas and electricity unit rates and standing charges, is not a fixed limit on total energy costs. Consumers’ bills still depend on their actual energy usage. Ofgem adjusts the price cap every three months (in January, April, July, and October) to reflect changing wholesale energy prices. The new price cap will be effective from January 1 until March 31, with Ofgem planning to announce the next cap by February 25.
In response to the rising energy bills, Ofgem suggests exploring different tariffs or payment methods to potentially reduce costs. Minister for Energy Consumers Martin McCluskey highlighted immediate actions being taken to alleviate high energy bills, including providing financial support through schemes like the Warm Home Discount. The government’s efforts also focus on long-term strategies to lower energy costs through clean energy initiatives and nuclear power projects.
As the energy price cap only sets maximum unit rates and standing charges, actual bills may vary depending on individual usage and geographical location. Different rates apply to prepayment customers and those paying upon receiving bills. The average unit rates for electricity and gas are subject to changes, with the latest adjustments affecting daily standing charges as well.
Ofgem assesses various factors, including wholesale energy prices, network maintenance costs, taxes, and supplier profits, to determine the price cap. Cornwall Insight predicts further energy bill increases in April, mainly due to rising expenses related to energy network operations and maintenance. The next price cap announcement is expected by February 25, 2026, with ongoing monitoring of market conditions to anticipate potential changes.