Price cap hiked, and tariffs too

 As expected,  Ofgem  announced a rise in the energy price cap to the tune of £117.Revealed at the beginning of the month, the rise in the price cap means energy suppliers can charge more for their standard variable tariff (SVT), but Ofgem say it was necessary to mitigate the rising wholesale costs of gas and electricity.

Speaking at the announcement, Dermot Nolan, Chief Executive of Ofgem, said:

"We can assure these customers that they remain protected from being overcharged for their energy and that these increases are only due to actual rises in energy costs, rather than excess charges from supplier profiteering,"

The rise will affect an estimated 11 million customers who are currently on SVTs. This puts the annual cost of energy, for an average user, at £1,254, up from £1,137 previously.

 Ofgem have stated that around £74 of the £117 increase in the cap is down to the higher wholesale costs of electricity and gas. Transportation of energy and environmental costs are also affecting the price.

Consumer group Which? has hit out at the increase, calling it ‘eye-watering’ and saying it will be a ‘shock to the system’ for those who thought the cap would protect them from soaring energy bills.

Price comparison site Uswitch accused Ofgem of setting the price too low in the first place. Their spokesperson said that although independent  energy suppliers typically bore the blame for price increases, it’s clear now that it’s unavoidable. They said that Ofgem were forced to do the same now that ‘the reality of energy prices’ has caught up with the ‘political hype’.

However, Chief Executive of Energy UK, Lawrence Slade, has said it was fair for Ofgem to raise the cap. He said that energy companies were facing ‘drastically rising costs’ outside of their control, and that it was right for Ofgem to reflect this in the adjustment of the cap level.

Since the announcement, the reality has begun to filter through. With all eyes on the big six as a marker of how the industry would respond, it’s now clear that price rises are inevitable.

The first to announce rises were EDF and E.On, announcing their new tariffs just days after the price cap was revealed. The rises by these two large energy suppliers equated to an increase of £117for E.On customers and £118 for those with EDF.

Hot on their heels was npower, announcing a price rise equivalent to £117 just two days later. British Gas and ScottishPower followed suit a week later, raising prices by £119 and £117 respectively. The last to announce was SSE on the 21st, whose price increase is calculated to be £116 higher than the previous level.

On average, these increases equate to a 10%price hike across the big six. Although the new tariff levels won’t kick in until 1st April, they represent an additional £1.3bn added to bills of customers on the most expensive tariffs. As well as this, those on prepayment meters have also had prices hiked, representing a further £380m on bills.

Uswitch commented on the hikes, saying:

“Energy customers should now be under no illusion that these standard tariffs represent a good price for energy. We could be looking at a total price rise of almost £1.7 billion — one of the biggest hikes on one day in nearly a decade.”

Smaller independent energy suppliers have also been putting their prices up, although there is less public information available on this.

So far, Co-op and Ebico have been named as increasing their standard variable tariff rates, but with all six of the big six raising prices we’re expecting to see more price rise announcements in the run up to 1st April 2019.

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