Ofgem has today (7 February) announced the default price cap on standard variable tariffs (SVTs) is to rise by £117 to £1,254 a year.
The price cap for pre-payment meter customers will increase by £106 to £1,242 a year for the same period of a six-month “summer” price cap.
The new level will come into effect on 1 April and will be reviewed again later in the year.
The regulator blamed a rise in wholesale costs for the cap increase, with Ofgem estimating that around £74 of the £117 increase in the default tariff cap is due to higher wholesale energy costs, which makes up more than a third (£521) of the overall cap.
Higher wholesale energy costs have similarly pushed up the level of the pre-payment meter cap, it said.
Furthermore wholesale energy costs remain 17 per cent higher than the last cap period, largely down to higher oil prices and a higher demand for gas during the “Beast from the East”.
Industry analysts have long suspected the cap to rise due to the increase in wholesale energy costs.
The regulator had already indicated that if the trend of rising wholesale costs continued it was likely that it would announce an increase this month to come into effect in the spring.
Ofgem added other costs, including network costs for transporting electricity and gas to homes and costs associated with environmental and social schemes (policy costs), have also risen and contributed to the increase in the level of the caps.
Ofgem’s chief executive Dermot Nolan, said: “Under the caps, households on default tariffs are protected and will always pay a fair price for their energy, even though the levels will increase from 1 April.
“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.
“Alongside the price caps, we are continuing to work with government and the industry to deliver a more competitive, fairer and smarter energy market that works for all consumers.”
The current level of the cap was set at £1,137 and came into effect on 1 January this year.
According to Ofgem, the caps will continue to ensure that the 15 million households protected “pay a fair price for their energy because the rises announced today reflect a genuine increase in underlying energy costs rather than supplier profiteering”.
The news has been met with concern by some in the industry.
Adam Scorer, chief executive of fuel poverty charity, National Energy Action, said: “The recent freezing weather, coupled with the likely energy company responses to the higher caps, will have a hugely damaging impact on the most vulnerable in our society.
“Whilst Ofgem’s caps are required to reflect the underlying costs of supplying energy, higher prices will inevitably pile yet more pressure on the millions who have no choice but to suffer in cold and dangerous homes.”
However Greg Jackson, chief executive of Octopus Energy, said: “The price cap is saving millions of British households money.
“Anyone who says otherwise is missing the fact that without it the legacy energy suppliers would have raised prices even higher.
“The pain of having to keep prices lower than they’d like is evident in their failed mergers, profit warnings and falling share prices.
“Today’s announcement just reinforces the massive gap between these dinosaur companies and modern retailers who use technology to deliver prices £200 below the cap alongside outstanding customer service.
“If there’s one message people can take from this – you’re safe switching to a better, cheaper company – and do it now before the inevitable big six price rises.”