Ofgem will increase the level of its safeguard tariff for a second time this year because of higher wholesale costs.
Currently five million customers benefit from the safeguarding tariff, which protects households from overpaying for their energy and from unjustified price rises, the regulator said.
Today (7 August) it announced the level of the tariff will be raised by £47 per year for dual fuel customers to £1,136 from 1 October.
Ofgem says the increased tariff is due to higher wholesale gas and electricity costs since the level was last updated in February to protect one million more customers who receive the Warm Home Discount.
In a statement the regulator said customers under the tariff will still be better off.
Dermot Nolan, chief executive of Ofgem, said: “Any price rise for customers is unfortunate. But while the level of the tariff will rise in October, these customers can be confident that this increase is justified and that their energy bill reflects the real cost of supplying gas and electricity.
“There are also better deals on the market for those who want to save even more money by switching.”
The safeguard tariff was introduced in April last year for prepayment meter customers.
In response to today’s announcement, Energy UK’s chief executive Lawrence Slade, said:“No one takes the decision to increase prices lightly however as Ofgem’s decision today illustrates, input costs – which make up the vast majority of an energy bill and are out of a supplier’s direct control – have increased and have risen by 14 per cent from May 2017 to May this year.
“Suppliers remain committed to further improving support for customers in vulnerable circumstances which is why we launched our independently-chaired commission this year to look at how to improve services and support for those in most need.”
In April this year the safeguard tariff was increased by £58 to £1,089 a year.
The regulator adjusts the level of the tariff twice a year, based on a pre-defined methodology set by the Competition and Markets Authority to reflect the estimated underlying costs of supplying energy.
This, Ofgem says, ensures that any price increase is justified by rises in underlying costs.
Craig Salter, energy policy officer at Citizens Advice Scotland said: “A further significant increase in the level of the safeguard tariff will worry households that already find their energy bills unaffordable.
“The safeguard tariff for prepayment meters is a welcome measure to help mitigate the most severe price rises but, as it responds to wholesale energy price changes, consumers are still vulnerable to significant price increases.
“It is likely that there will be similar issues with the price cap on standard variable tariffs when that is introduced later this year.
“More robust measures are needed to make energy bills more affordable for vulnerable consumers.”
Last month Ofgem announced it was dropping plans to introduce a backstop price protection for vulnerable customers after the proposed energy price cap bill gained Royal Assent.
The price cap will protect an estimated 11 million households on poor value default tariffs by the end of the year.