What is the energy price cap? UK energy price cap rise in 2022 and how the energy price cap works

What is the energy price cap? UK Power Price Cap Price 2022 and how the power price cap works (Image Credit: Nick Ansell/PA Wire)

After energy bills skyrocketed to record levels in 2021, the energy price cap will rise further in 2022.

Ofgem announced on Thursday 3 February that the energy price cap will rise by more than 50% from April as UK households face even higher gas and electricity bill costs.

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The 2022 peak energy price increase comes amid a general rise in the cost of living in the UK, with Prime Minister Boris Johnson urged to take further action against rising inflation and the expected rise of interest rates.

But what is the price ceiling for energy? And how it works?

Here’s everything you need to know about the UK’s energy price cap, how it works and how much bills are likely to rise in April 2022.

What is the energy price cap?

Introduced by the UK government in 2019 and regulated by energy regulator Ofgem, the energy price cap sets a limit on how much providers can charge UK households at predetermined rates.

The price cap regulates the cost of energy units and is supposed to ensure that customers do not pay excessive amounts for their gas or electricity, or are not vulnerable to competitive behavior by dominant market players.

It is reviewed by regulator Ofgem every six months based on a set of rules.

In August 2021 it was announced that the increase in wholesale gas and electricity prices would lead to an increase in the energy price cap from October 1.

The rise in the energy price cap added an estimated £139 a year to household energy bills, with typical UK gas and electricity customers paying up to £1,277 since October.

In line with rising wholesale gas and electricity costs currently being felt around the world, further accentuated by heightened geopolitical tensions with Russia, energy bills will rise further in April 2022 as Ofgem announces results of its energy price cap review on Thursday February. 3.

How does the energy price cap work?

Ofgem reviews the energy price cap every six months in accordance with changing wholesale prices in the energy market.

It is used to put a limit on how much gas and electricity providers can charge customers for each unit they use.

It sets a limit on the maximum amount providers can charge you for daily standing charges, which are the cumulative prices you pay for your home to receive energy from the national grid.

The cap itself is calculated based on wholesale gas and electricity prices, plus operating costs for providers and taxes.

How much is the energy price cap for 2022?

Ofgem revealed on Thursday (February 3) that the UK energy price cap will rise by 54% and £693 to £1,971 per year due to rising wholesale gas and electricity prices.

Experts previously warned in 2021 that rising energy costs could see a price cap increase of 14% from April 2022.

Cornwall Insight Senior Consultant Dr Craig Lowrey said: “Although the 2021-22 winter cap was a new record (£1277 for a typical dual fuel direct debit customer), Cornwall Insight’s modeling indicates which, given the extent of the increases in the wholesale market and the way the cap is set: this will be surpassed by the summer of 2022.”

He added: “We would need to see a material and sustained drawdown in the wholesale market to avoid the kind of highs that we anticipate for the period.”

With wholesale power market prices only rising in the months since the previous power cap increase, pundits’ fears of even higher price increases now appear to be confirmed.

Will my energy bills go up?

Whether you pay your energy bills at a standard variable rate or a predetermined energy rate, the energy price cap will have an impact on your energy bills and costs.

For example, British Gas’ Standard, Standard PAYG, Standard Variable, Safeguard, PAYG Safeguard, Safeguard PAYGv2, FlexiPAYG Mar 2023, Welcome to British Gas and The Peoples Tariff rates are subject to the maximum price.

Households with fixed rate rates with their energy provider are not affected by the price cap.

The energy price cap itself doesn’t limit how much you’ll pay for your bills, as it applies to unit rates and providers, so you could end up paying more than the energy price cap amount in 2022 if you have a bigger house or use more. Energy.

But given the expected increase of up to 50% in the current price cap, millions of households across the UK are likely to see their bills rise.

This is because many energy providers could be expected to reflect the increase in the energy price cap with increases in the costs of standard and default rates.

According to the Times, Foreign Minister Rishi Sunak will commit to giving households in municipal tax bands A to C government grant-funded rebates under specific measures for the poorest households.

Additional report by PA

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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