The energy price cap is set to increase to £3,549 per year from October 1, Ofgem has announced.

This represents an 80 per cent rise of the current cap of £1,971.

The increase is being driven by rising wholesale gas prices globally – a result of the Covid-19 pandemic and Russia reducing gas supplies to Europe.

According to Ofgem, wholesale prices for this winter has risen 360 per cent since last December.

Explaining the price cap, Ofgem says: “The price cap, as set out in law, puts a maximum per unit price on energy that reflects what it costs to buy energy on the wholesale market and supply it to our homes.

“It also sets out a strict and modest profit rate that suppliers can make from domestic energy sales. However, unlike energy producers and extractors, most domestic suppliers are currently not making a profit.

“The price cap protects against the so called ‘loyalty premium’ where customers who do not move suppliers or switch to better deals can end up paying far more than others. Ultimately, the price cap cannot be set below the true cost of buying and supplying energy to our homes and so the rising costs of energy are reflected in it.

“Although Ofgem is not giving price cap projections for January because the market for gas in winter means that prices could get significantly worse through 2023.”

The regulator has called on the government for more support to help households navigate the crisis.

Jonathan Brearly, chief executive of Ofgem, said: “The government support package is delivering help right now, but it’s clear the new Prime Minister will need to act further to tackle the impact of the price rises that are coming in October and next year.

“We are working with ministers, consumer groups and industry on a set of options for the incoming Prime Minister that will require urgent action. The response will need to match the scale of the crisis we have before us.

“With the right support in place and with regulator, government, industry and consumers working together, we can find a way through this.”

Ofgem has said it has also strengthened rules around direct debits to ensure suppliers set them at the right level, meaning customers only pay exactly what they need to rather than building up “excessive” credit balances.

You can read the full announcement from Ofgem here.

Picture credit – Steven from Pixabay