Energy bills are set to increase for numerous households this winter following Ofgem’s announcement of a new price cap. The price cap will see a 2% rise starting this October, meaning a £100 spend on gas and electricity will now amount to £102. This uptick is higher than anticipated, as most analysts had predicted a 1% increase.
For the average dual fuel household paying via direct debit, Ofgem states that annual energy bills will climb from £1,720 to £1,755. Those using pre-payment meters will see their yearly cap increase from £1,672 to £1,707, while pay-on-receipt customers will experience a rise from £1,855 to £1,890.
Notably, the price cap does not impose a limit on overall energy costs but rather restricts the charges for gas and electricity unit rates as well as standing charges. Standing charges, which are daily fees to remain connected to the network, apply regardless of energy usage. The price cap undergoes revisions every three months, specifically in January, April, July, and October.
The revised price cap will come into effect on October 1 and remain valid until December 31, after which Ofgem will update it once more. Ofgem attributes the larger-than-expected increase to shifts in network expenses and the expansion of the Warm Home Discount scheme, offering eligible households a £150 deduction on their winter energy bills.
In a statement, Ofgem’s Director General, Markets, Tim Jarvis, noted positive market trends such as increased adoption of fixed tariffs, rising consumer switching options, improved customer satisfaction, and reduced complaints. Jarvis advised customers to consider fixed tariffs to potentially save over £200 compared to the new cap, and highlighted payment methods like direct debit or smart pay as you go as money-saving options.
Michael Shanks, Minister for Energy, acknowledged the concern surrounding price hikes and attributed them to a 75% increase in wholesale gas prices following geopolitical events. Shanks emphasized the government’s commitment to transitioning to clean, domestically controlled energy sources to stabilize bills. Additionally, efforts are underway to support vulnerable families by extending the Warm Home Discount and enhancing customer protections.
The Ofgem price cap determines the maximum charges for gas and electricity unit rates and standing charges, influencing individual bill amounts. While the main price cap figure represents the average annual bill, adjustments every three months accommodate fluctuations in wholesale energy prices. Unit rates and standing charges vary by region and customer type, impacting individual bills differently.
The average electricity unit rate is rising, from 25.73p per kilowatt-hour to 26.35p per kWh, while the standing charge is increasing from 51.37p to 53.68p daily. Conversely, the gas unit rate is decreasing from 6.33p per kWh to 6.29p per kWh, with the standing charge rising from 29.82p to 34.03p daily.
Approximately 34 million individuals in England, Wales, and Scotland fall under the price cap, including various customer categories like direct debit, prepayment, and pay-on-receipt customers. Shopping around for fixed tariffs could yield savings exceeding £200 compared to the impending price cap level, benefiting around 20 million households on fixed energy tariffs.
Wholesale energy costs are a significant component of the price cap, reflecting what suppliers pay for gas and electricity. Ofgem considers factors like maintenance expenses, network costs, VAT, payment methods, and supplier profits in determining the price cap. The January price cap announcement is scheduled for November 27, 2025, with projections suggesting a potential decrease for the typical direct debit household.
Cornwall Insight, known for accurate price cap forecasts, estimates a potential drop in the January price cap to £1,712 for direct debit households. However, this projection remains subject to geopolitical shifts, weather conditions, policy changes, and new cost introductions.