Ofgem Quarterly Energy Price Cap Review

Energy price caps will be updated every three months from October to make wholesale price changes more affordable to households under the Ofgem proposal.

The cap, which limits the price to 22 million households in standard tariffs or pre-payment meters, is currently updated every six months and rose a record 54 per cent year-on-year in April to around পা 2,000.

This is due to change after October, when industry experts believe it could rise significantly due to higher wholesale prices following Russia’s invasion of Ukraine.

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The cap will change every three months in January and thereafter under Ofgem’s proposal.

“The more frequent price caps will reflect the most up-to-date and accurate power prices and this means that when prices fall from current record highs, customers will see the benefits very quickly,” Offgame said.

Offgame is also proposing a technical change to the way caps are calculated, which could increase wholesale prices as well as add up to £ 80 to the price cap level from October.

Scottish Power predicts that bills could rise to £ 2,900 a year, with the impact of technological change.

The price cap is set using the historical wholesale price, which creates a time interval between changes in the market price, as reflected in the cap.

This means that households were protected from the worst of last winter’s wholesale price increases, which did not reach the cap until last month.

However, it also raises the possibility that when wholesale prices fall, consumers will still pay higher prices on price-restricted tariffs.

Wholesale prices have fallen sharply in the last month or so, but the price cap is expected to rise further in October due to higher prices being “backed in” by the price cap system in February and March.

Ofgame says that “the current approach means that consumers are not able to reap the benefits of rapid gas price reductions.”

Predetermined methods also create problems for suppliers, because when prices rise rapidly, more customers move toward price-limiting tariffs, they have higher demand than expected which they have to meet at higher market prices, at a loss.

When prices fall, those consumers may move toward cheaper fixed-price tariffs, with suppliers unable to recover the high energy costs they have already paid.

There are concerns that this could lead to more companies collapsing after more than 30 failures since the beginning of last year, leaving the bill behind for billions of pounds of consumers.

OffGame says that changing the quarterly update will help solve this problem because suppliers will have a better idea of ​​how much they need to buy power for their customers.

Jonathan Brearley, chief executive of Ofgem, said: “Today’s proposed change means that the price cap will be more reflective of current market prices and any price fall will be passed on to consumers more quickly. This will help energy suppliers better estimate how much energy they need to purchase for their customers, further reducing the risk of supplier failure, which ultimately increases costs for consumers.

“The past year has shown that we need to change the price cap to enable suppliers to better manage risks in this unprecedented market situation.”

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