fgem has confirmed that energy price caps will be updated quarterly instead of every six months, as it warns consumers face a “very difficult winter ahead”. .
The regulator said the change would “go some way to providing much-needed stability in the energy market”, adding: “It is in nobody’s interest to see more suppliers fail and exit the market.”
It said Russia’s actions in Ukraine led to volatility in the global energy market, which was “extremely prolonged, with both gas and electricity prices at record highs” last winter.
As expected, Ofgem warned that as a result of market conditions, the price cap may have to be raised later this month to reflect rising costs.
However, he said the changes would mean any reduction in wholesale prices would be passed on more fully to consumers and more quickly with a quarterly price cap.
Ofgem chief executive Jonathan Brierley said: “I know this situation is deeply worrying for many people. As a result of Russia’s actions, the volatility we experienced in energy markets last winter, They have lasted much longer, prices are higher than ever, and this means that the cost of supplying electricity and gas to homes has gone up considerably.
“The trade agreements we need to make on behalf of consumers are extremely difficult and there are no easy answers yet. Today’s changes ensure that the price cap does its job, ensuring that Customers are not only paying the true cost of their energy, but also that it can adjust to the current fluctuating market.
“We will continue to work with the government, consumer groups and energy companies to see what further support can be provided to help with these high prices.”
Mr Brierley later confirmed on BBC Radio 4’s Today program that Ofgem was considering taking the money from standing charges, but warned there were trade-offs involved and “there are no easy answers in the market at the moment”. .
Referring to his prediction in May that Ofgem expected energy prices to rise “in the region of £2,800” in October, he said: “I would say it’s quite clear that we have a Again expecting significant increases, even estimates we made in May. And that just shows you how dramatically the market is changing.
Asked about proposals to help consumers, such as cuts to VAT and green levies, he replied: “We have a package of around £40 billion to pay as a discount on our bills, but I think Everyone recognizes that the market has changed fundamentally since the announcement of the package, which was just two months ago, so every politician will be wondering how they can slow it down.
He added: “I think we all know that more will need to be done.”
Darren Jones, chairman of the Business, Energy and Industrial Strategy Committee, said: “While the changes announced by Ofgem today will prevent more energy suppliers from going bankrupt, and adding the cost of failures to our bills, It also means that consumers will see their bills go up more often than before. The increase won’t be as big as before, but it will be an increase nonetheless.
“When the price of energy starts to come down, consumers will see their energy bills drop sharply, but I don’t expect to see that until late 2024 or 2025.
“That is why my committee has asked the government to consider introducing a social tariff as a more effective way of price regulation to help low-income households.”
The changes to the price cap come as household energy bills are expected to remain more than two-and-a-half times pre-crisis levels until at least 2024, according to the latest forecasts.
Cornwall Insight, one of the country’s most respected energy consultancies, said bills for the average household will reach £3,359 a year from October, and will not fall below that level until at least the end of next year. .
It said the price cap on energy bills, which governs what 24 million British households pay, will rise to £3,616 from January and rise further to £3,729 from April.
It will then start to fall, but only gradually, to £3,569 from July before reaching £3,470 in the final three months of 2023.
The latest forecasts are hundreds of pounds higher than previous forecasts by Cornwall Insight, but slightly lower than what another consultancy, BFY, had predicted.
In May, the government announced an energy cost support package – worth £400 per household – in response to predictions that bills for the average household would rise to £2,800 in October.
The package also promises additional support for more vulnerable households.
Last month, Cornwall Insight predicted that annual energy bills would typically rise to £3,244 from October and £3,363 from January, but things have changed significantly since then.
The latest forecast comes as the Kremlin seeks to further throttle gas flows to Europe.
Although the UK receives very little of its gas directly from Russia, the price paid here is determined across the continent.
If the predictions come true, they will put enormous pressure on already squeezed households.
This would almost double today’s record price cap which is already hundreds of pounds higher than the previous high at £1,971.
While it’s still early days for the January forecast, analysts already have much of the data they need to accurately predict the October peak.
National Energy Action Director of Policy and Advocacy Peter Smith said: “It was not necessary for households to go ahead with price cap changes quarterly rather than every six months and unfortunately a further significant price rise in January is inevitable.
“Average annual bills are already predicted to rise by £1,200 a year – a 177% increase since last October. Now, households can expect a further rise just after Christmas, the summer season. In the middle of when energy costs are usually the highest.
“January is also typically a time of increase in mental health problems and further increases in bills will sadly cause distress and great distress to energy consumers across the UK, particularly the poorest households. It is disappointing that Ofgem has not listened to these concerns. They could have used their discretion to introduce reforms in April to address this avoidable outcome when energy demand began to decline.
“The change also underpins growing calls for deeper price protection for the poorest households, something Ofgem can and must support.”
Gillian Cooper, head of energy policy at Citizens Advice, said: “What is added to all our bills is the cost of supplier failure. The quarterly price cap changes should limit the risk of further supplier outages, Which is a good thing. But our bills are already incredibly high and still going up.
“The government was right to bring financial assistance to people, but it may not be enough to keep many families alive. It must be ready to work again before winter comes.
“Ofgem should make sure suppliers are helping customers who are struggling to pay. It should hold energy companies to account so people aren’t chased by debt collectors or when they can’t keep up with bills. If so, push it to the pre-paid meter.