Ofgem has revealed that the price cap on default tariffs will rise by £693 in April to £1,971 following the quadrupling of wholesale energy prices over the last year.
It represents a 54% increase over the current level of £1,277 per year.
Meanwhile, the price cap for prepayment customers will swell by £708 from £1,309 to £2,017.
Ofgem chief executive Jonathan Brearley said: “We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.
“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.
“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”
Price cap breakdown
The regulator noted that the price cap hike includes a £68 increase in network costs due to the recovery of Last Resort Supply Payments, which enable retailers to claim back costs incurred by becoming a Supplier of Last Resort.
Ofgem said it will also announce further measures to deal with the ongoing energy crisis on Friday (4 February). These include:
- An uplift in the wholesale cost allowance in the price cap: Ofgem said the existing price cap methodology does not appropriately account for the additional wholesale costs suppliers have incurred during the current price cap period following the “unprecedented scale of wholesale energy prices and volatility”. It said this adjustment represents less than 10% of the overall price cap increase.
- Changes to license conditions to allow Ofgem to make in-period adjustments to the price cap: the regulator said it has set itself five tests to ensure this power is only used in exceptional circumstances.
- Further reforms to the price cap from the start of the following six-month period in October: Ofgem said it will issue a consultation on Friday on the three potential options it outlined in December to make the price cap more resilient to high and volatile wholesale costs. The regulator said it will provide quarterly updates on its preferred option.