Industry responds to Ofgem’s new price cap

Ofgem announced a new price cap today – but what does the energy industry think?

Ofgem announced today that from April, price cap will return to pre-pandemic levels, as a result of changes in wholesale energy prices. 

The new cap will put up to £96 on households’ bills.

But how the industry responds?

Cost of buying energy has risen significantly 

Responding to this morning’s price cap announcement, Energy UK’s Chief Executive Emma Pinchbeck said: “Ofgem sets the price cap at a level to ensure that it’s both a fair price for customers and to cover the costs suppliers face so they can continue to provide reliable services to homes.

“Today’s rise reflects that the cost of buying energy, by far the biggest part of the bill, has risen significantly over the last few months. It also includes a greater allowance for debt given the difficulties many customers are facing in paying bills at present.”

She added that suppliers have been doing everything they can to support households through this difficult period, increasing the number of payment holidays, agreeing on repayment plans as well as providing emergency credit to prepayment customers.

This increase will mean much more than a £96 rise 

The campaigning organisation Fuel Poverty Action said: “With huge numbers of people already hungry and cold, this is no time for further pressure. Ofgem is looking at suppliers costs.  But if prices go up, so must incomes including wages, furlough, and benefits like Universal Credit. And our homes must finally be well insulated: this increase will mean much more than a £96 rise for people who are forced to pay to heat the streets.”

A substantial increase

Robert Buckley, Head of Relationship Development at Cornwall Insight said: “This is a substantial increase which negates all of the reduction in October’s price cap update. However, it is little surprise that we saw such a rise in the default price cap level today, due to the rebound in wholesale prices following the first lockdown.

“Although wholesale prices represent a large part of today’s increase, there are other factors at play. Ofgem’s £23.69 adjustment for bad debt and rises to some policy costs to support renewable generation will have no doubt compounded this rise.”

Cornwall Insight also predicts the Winter 2021-22 cap could see a further increase of approximately £14, assuming that the £23.69 Summer 2021 adjustment allowance is not carried on into next winter.

Further strain on households 

Natalie Hitchins, Head of Home Products and Services at Which?, said: “Energy customers will be left reeling by this increase to the price cap which allows suppliers to raise the prices of their default tariffs to where they were before the pandemic, putting further strain on households struggling with rising bills due to increased usage during the lockdown.”

The increase will only make matters worse 

The End Fuel Poverty Coalition, a broad coalition of anti-poverty, environmental, health and housing campaigners, charities, local authorities, trade unions and consumer organisations, has criticised the decision to increase fuel bills for millions of people: At the last count, 3.7 million households were already classified as living in fuel poverty and more than 2.1 million more were behind on their fuel bills.

“Any price cap rise will only make matters worse for families struggling to make ends meet at the same time as bills are rocketing due to stay at home lockdown measures and the closure of schools.

“While the price cap rises may seem small to officials, for ordinary people any increase will mean the choice between heating or eating becomes even starker.”

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