Rising wholesale energy costs will lead to a 5% price cap increase for consumers in January, Ofgem has confirmed.
In its latest quarterly cap update, published on Thursday (23 November), the energy regulator has also unveiled plans to level standing charges for prepayment meter (PPM) customers to end the so-called PPM premium.
Ofgem chief executive Jonathan Brearley reiterated calls for energy suppliers to get better at identifying and protecting vulnerable customers. However, he welcomed the “return of choice” to the retail market as a boon for customers.
From 1 January 2024 around 29 million consumers will see the cap increase, with an average dual fuel direct debit customer paying £1,928, a rise of £94 over the course of a year – around £7.83 a month.
For these customers, the unit rate will be 29p/kWh for electricity and 7p/kWh for gas. The average daily standing charge will be 53p/day for electricity and 30p/day for gas.
Ofgem explained that the main driver behind the increase was the rise in wholesale costs, which have soared almost 10% since the previous quarter from £898 to £985.
Meanwhile those paying via other methods, such as standard credit customers who pay by cash or cheque, will also see an increase.
The standard credit cap level will increase by £99 (5%) and will be £2,058. These customers will pay an additional £130 compared to those who pay by direct debit for the forthcoming cap period.
For electricity only customers on Economy 7 meters, the standard credit cap level will increase to £1,352 – a £55 (4%) increase. This is an additional £81 compared to direct debit.
The PPM cap level will also increase and will be £1,960, a £99 (5%) increase. This cap level will be £32 higher compared to the direct debit level. For electricity only customers on Economy 7 meters, the PPM cap level will increase to £1,283 – a £52 (4%) increase and £11 more than direct debit.
Brearley said: “This is a difficult time for many people, and any increase in bills will be worrying. 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.
“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.
“We are also seeing the return of choice to the market, which is a positive sign and customers could benefit from shopping around with a range of tariffs now available offering the security of a fixed rate or a more flexible deal that tracks below the price cap.
“People should weigh up all the information, seek independent advice from trusted sources and consider what is most important for them whether that’s the lowest price or the security of a fixed deal.”
Ending the ‘PPM premium’
Elsewhere, the regulator has also today published a statutory consultation on its plans to level standing charges for PPM and direct debit customers.
Due to their higher costs to serve, PPM customers have traditionally paid more than direct debit customers. The introduction of the government’s Energy Price Guarantee (EPG) last year however meant that this premium was temporarily removed.
Ofgem has been tasked with coming up with an enduring solution so that PPM customers will pay the same standing charges as those on direct debit once the EPG ends in April 2024 and has published its plans today.
The regulator revealed that its consultation also sets out proposals to share the costs of bad debt more equally across customers to reduce the premium paid by standard credit customers.
This, it said, would save PPM customers around £50 a year, reduce standard credit bills by around £45 a year but add around £20 a year for direct debit customers.
It follows the recent publication of a call for input on how standing charges are calculated. Ofgem said this has “already attracted a high number of responses in the first week of the consultation”.
The next quarterly price cap announcement will be made in February 2024, covering April – June 2024.