Ofgem announces energy bills will rise by 5% from the New Year

Bright and early this morning, the new energy price cap for the next three months was announced, which will take effect from the New Year, the 1st January 2024. And we’re afraid it’s not the good news we were all hoping for. Ofgem, the country’s independent energy regulating body, set the new energy price cap for dual-fuel households (using both gas and electricity) paying by direct debit at £1,928. 

Compared to the October energy price cap announced this August, which was set at an average of £1,834, the new amount is higher by £94, which equals to a 5% increase.

This number is reflective of the current global energy crisis we find ourselves in the midst of. However, this announcement doesn’t come as much of a shock as this is very much in line with expert predictions. And if they were right about this, then they might also be correct about the cap dropping in the following quarters of next year. Fingers crossed that is.

Ofgem announces January 2024 energy price cap

Essentially, the energy price cap is the maximum price limit energy companies are allowed to charge households per kilowatt hour of used gas and electricity and the standing charge per day which covers the cost of supplying energy to your home. 

The price cap is expressed as an average annual figure for a typical home, or ‘typical consumer’ as Ofgem calls it, based on typical use calculated from national average usage figures. Which means that the price cap is not the absolute maximum price you could be paying for energy. If you use more energy than the typical consumer, then you will pay more than the energy price cap. It is just the maximum you’d pay if you were using that exact amount of energy used for the calculations.

Ofgem quotes the rise in electricity and gas wholesale prices as the reason for the new increased energy price cap.

‘This is a difficult time for many people, and any increase in bills will be worrying,’ says Jonathan Brearley, CEO of Ofgem. ‘But this rise – around the levels we saw in August – is a result of the wholesale cost of gas and electricity rising, which needs to be reflected in the price that we all pay.’ 

What the experts are saying

Dr. Craig Lowrey, principal consultant at Cornwall Insight, one of the experts that predicted the rise in the energy price cap, comments, 'Amid the cost-of-living crisis, the last thing households need is a rise in energy bills – especially going into the winter months. 

'Earlier this year, it seemed like the outlook for consumer bills was improving, with bills gradually falling after the dramatic rises post Russia’s invasion of Ukraine. However, as is often the case in the energy market, new challenges have arisen, and our reliance on foreign energy has once again left the UK vulnerable to price increases caused by events around the globe.'

Gareth Kloet, Go.Compare’s energy spokesperson, adds, 'As many households will be increasing their energy usage due to the colder weather and darker evenings, today’s price cap announcement won’t be welcomed by anyone, despite it still being lower than last year.'

'It’s clear from today’s announcement that we are still a long way off from energy bills being at a reasonable level and it’s clearly having an impact on how we are using our gas and electricity. The latest research from Go.Compare shows that this Autumn, 20% of people won’t be turning on their heating to save money on their energy bills. These figures are worrying as the increase will come into force in January 2024, a time when temperatures will potentially plummet even further.'

Indeed, the price hike couldn't come at a worse time than the height of winter. 'A 5% increase in the price cap means that energy bills this winter are likely to be the highest they’ve ever been for most households,' warns Natalie Mathie, energy expert at Uswitch. 'The price hike will kick in on 1st January at a time when homes are using the most energy to battle the coldest temperatures.'

But if you are seeking help with your energy bills, the regulator stated that it expects energy companies to offer customers the help they need. ‘It is important that customers are supported and we have made clear to suppliers that we expect them to identify and offer help to those who are struggling with bills.’

The bottom line is that saving energy at home and keeping your usage to a minimum is the best way to lower your energy bill to mitigate the impact of the new energy price cap.

'Tracking your usage can reveal ways to save energy, such as lowering wash temperatures or changing your cooking methods,' Natalie recommends. 'Using an air fryer or slow cooker to cook meals can use much less energy than an oven, and using an electric blanket instead of turning on the heating is much more efficient.'

She continues, 'With the price cap changing every three months, a fixed deal is the only way to get certainty on your energy bills. A few fixed tariffs are available and may offer you some stability, but check that you’re happy with the monthly payment before signing up.'

So shop around for the best tariff and switch to the energy supplier offering the right plan for you – the switch only takes up to five working days, otherwise Ofgem's new policy makes providers compensate customers with a £30 fee.

And here's to hoping that next quarter will bring better news.