Everyone will know about energy shock as households in England, Wales and now Scotland faces the biggest change in energy pricing. The new energy price cap will rise at the start of January 2025. This has all played out against a backdrop of unprecedented consumer debt, now standing at a record £4.4 billion. It is welcome that Ofgem, the energy regulator, has intervened to address this issue. They claim that writing off up to £500 million of the overall debt is on the cards.
The energy price cap is most important for customers who are on a variable price tariff. It is a critically important consumer protection that touches every household, and it is meant to protect consumers from paying crazy, exorbitant rates. In January 2022, very few people were on the highest cap of £1,216, while that cap exploded in January 2023 to £4,059. The recent Energy Price Guarantee, which limited bills to £2,380 for a typical household from October 2022 to June 2023, temporarily alleviated some pressure. The cap is fixed at £1,755 from October to December, and so future costs still worry many customers.
Ofgem’s proposed price protections are in the right direction, but will still leave many vulnerable households facing unacceptable energy bills. The regulator is being much more proactive in making energy companies accountable for their debts. This accountability is welcome, particularly following the chaos in the energy market this past winter. With so many consumers still struggling with excessive prices and increasing cost of living, this measure can be a great help to them.
Dhara Vyas, chief executive of Energy UK, highlighted the severity of the situation:
“We know that far too many people are struggling to pay for the energy they need to use.”
This declaration marks an important recognition of the growing cost burden on consumers who are dependent on energy to meet their basic needs.
When determining the energy price cap, they have to decide what an average use case looks like. For a low-use flat/one-bedroom house with an average energy performance it would be about 7,500 kWh for gas and 1,800 kWh for electric. Their usage would result in an annual bill of about £1,266. Increasing to a high use two or three bedroom house that uses about 11,500 kWh equivalent of gas usage. It represents the use of around 2,700 kWh of electricity, incurring costs of almost £1,775. Larger households with four or more bedrooms would largely have bills of £2,470 because they consume more.
These changes coming in January will be important, since it will help consumers brace for yet another hit to their energy bills. Over 20 million households are encouraged by Ofgem’s proposed plan. They hope that these initiatives will help reduce their debt load and bring about more consistent pricing down the road.
As so many households face increasing cost pressures, industry professionals emphasize that energy providers can be essential partners in addressing consumers’ needs during these turbulent times. Energy efficiency suppliers have a role to play in easing the burden of rising costs, too, by delivering more efficient appliances. They offer customized tariffs that fit one’s unique needs. Further, helping customers know about and enroll in the right benefits helps relieve financial pressure even more.