Energy price cap (Update) - 15m consumers just got handed a £2 billion bill

• Standard tariffs getting hiked by £139 (12.2%) from 1 October 2021.
• "Protected" customers will see their energy bills increase by £235 (23%) in just 1 year.
• 15 million customers need to find an extra £3.5 billion to pay their energy bills in 2021.
• Customers on default tariffs have already lost out by £695 and counting.

Today (6 August 2021), Ofgem, the gas and electricity regulator, announced the level of the Energy Price Cap for the 6-month period commencing 1 October 2021.

With effect from 1 October 2021, energy consumers on Standard Default Tariffs (11 million give or take) will see their energy bills hiked by £139 (12.2%) to £1277. That's a combined bill increase of over £1.5 billion.

Prepayment customers will see an even greater increase of £153 from £1,156 to £1309. Their bills will increase by £600m.

Rising wholesale prices accounted for £155 (115%) of the increase. This was offset by a reduction, rather surprisingly, in policy costs of £13.

This announcement brings the total increase for the year to £235, amounting to £3.5 billion for 15 million protected customers.

Energy Price Cap - some facts, figures and analysis

This will be the 7th time the cap has been set since the it was introduced on 1 January 2019. The new cap will run from 1 October 2021 through to 31 March 2022.

So far, we have had 4 cuts and 3 massive increases (see Table 1 below). On balance this leaves Standard Variable Tariffs £97 (8%) higher than they were before the cap came into effect.

A quick reminder…. The energy price cap was introduced to bring "an end to rip-off energy prices once and for all".

It was supposed to achieve this by reducing the difference between poor value Standard Variable Tariffs and the cheapest energy deals in the competitive market so that those customers who couldn't or wouldn't switch, would end up overpaying by less. Still overpaying, but just by less. Ofgem was promising consumers an annual benefit of £75-100.

So, has the energy price cap delivered?

Analysis from energy price comparison site The Energy Shop shows that (Figure 1 below):

• In the 12 months before the price cap came into effect, the price differential between a basket of the cheapest deals and the basket of the Standard tariffs of the Big 6 was £288. That is what the household with average energy usage would have saved themselves, each year, if they had switched their energy (in a world without price caps).
• The price cap has now been in operation for 31 months.
• In those 31 months the cap has reduced the price differential in 13 monthly periods (42% of the time).
• 58% of the time the price differential has been greater than it was without the price cap. In those periods not only has the price cap not saved consumers anything at all, it has actually cost them money.
• Overall, the price cap has managed to reduce the differential between price cap tariffs and the competitive market by an annualised £19. This is nowhere near the £75-100 promised by Ofgem. Once this new increase comes into effect, the savings from the cap will again turn substantially negative meaning customers will again be worse off than if the cap had never been introduced.
• Any customer who has stuck with the price cap has, to date, already lost out on savings of £695 and counting.

The Energy Shop Comment

Joe Malinowski, founder of energy price comparison website The Energy Shop commented….

"Back in February 2021 we said that "The outlook for energy consumers was the worst we have seen in over a decade." Well, it turned out even worse than we expected. There is no way of putting this mildly. The outlook for domestic energy prices is ugly, and the impact on energy consumers is going to be brutal. 15m consumers are going to see £235 added to their annual energy bill in 2021"

Joe Malinowski, concluded.

"Energy price hikes are never welcome even at the best of times. But with many households already struggling financially, these increases are really going to hurt."

"The outlook is bleak but there is a way out. Switching energy supplier to one of the cheaper fixed deals can still save you around £232 a year. It won't get your energy bills back to where they were a year ago, but it can come close. At this point, it is the only way to get your bills down."

Table 1 - Energy Price Cap Summary

Notes: Figures have been recalculated based on the latest average domestic consumption values to make them comparable. These will differ from Ofgem's reported historic figures as Ofgem has not yet adjusted its data.

Contacts

Scott Byrom
Chief Executive Officer
07772 129 591
scott.byrom@theenergyshop.com

Joe Malinowski
Founder
07970 160 541
joe.malinowski@theenergyshop.com