Energy price cap to hit £2,800 in October – what it means for you in 2022

The UK energy price cap is expected to hit £2,800 in October, meaning households will be paying 42 per cent more than they are currently.

The price cap had already risen to £1,971 on April 1 but will rise again in October. The chief executive of Ofgem, the energy regulator that sets the price cap, has reportedly warned Chancellor Rishi Sunak about the increase.

It will put more pressure on already struggling households and comes with inflation at 9 percent and higher taxes since last month.

Traditionally, the solution to rising gas and electricity tariffs has been for customers to look for a better deal. However, this could now cost households hundreds of pounds out of their own pocket. telegraph money guides you through the state of the energy market and how to deal with the ever increasing bills.

What is the energy price cap?

The price cap limits how much energy companies can charge households for each unit of gas or electricity, and the proposed new cap of £2,800 is based on what the average UK household will pay. In reality, the amount you pay is unlimited and depends on how much energy you use.

Regulator Ofgem sets the price cap based on a “general estimate” of how much it costs a supplier to provide gas and electricity services to a customer.

The calculation is mainly made up of wholesale energy costs, network costs such as pipe and pipe maintenance, policy costs including the government’s social and environmental programs, operational costs such as billing and metering services, and VAT.

dr Craig Lowrey of Cornwall Insight, an analytics firm, said that in addition to rising wholesale prices, the cost of shifting customers from failed suppliers to a larger and more stable one has contributed to the price cap’s steady rise since last year.

Defaulted suppliers will also be unable to pay industry levies, including low-carbon levies, and surviving companies will have to foot the bill, which will also help raise the cap.

Does my energy supplier offer a price-cap protected tariff?

All providers offering a standard tariff have to cap it according to the rules of regulator Ofgem, with the exception of a few selected ‘green’ providers. However, they are under no obligation to actively market these deals, which can sometimes make them difficult to find.

In some cases, providers have removed standard rates from their websites. This means customers may not know that it would cost them less to simply switch to their carrier’s standard rate rather than switching offerings. Some suppliers have even taken to “pressuring” customers with “time-sensitive” fixed contracts.

Your provider must tell you if they offer a standard rate upon direct request.

Some renewable energy providers, including Good Energy and Ecotricity, have an exemption from the energy price cap. Good Energy’s standard variable contract costs the average household £2,230 a year. This is 8 pieces or £259 more than the April cap. Ecotricity’s standard contract would cost the average household £2,179 a year – £208 more than the cap.

What happens if my energy supplier collapses?

If your supplier goes out of business, Ofgem will switch you to a ‘supplier of last resort’ and all credit with the old energy supplier will be transferred. Affected households should read meter readings, as they have to pass them on to their new supplier.

Citizens Advice’s Gillian Cooper said: “If you are a customer of one failed supplier, Ofgem will direct you to another. This may take a few weeks, but your gas and electricity supplies will continue in the meantime. Your new supplier will be in touch with you and it’s good to be prepared beforehand. Keep track of meter readings, keep old utility bills, and jot down your bank balance.

“Wait for your new supplier to be named before canceling direct debits. This should ease the transition.”

What has the government done to help?

Chancellor Rishi Sunak has announced billions of dollars in government support to help ease the cost of rising energy bills for families.

28 million households will receive a £200 government grant to help mitigate the impact of the price cap hike. An upfront rebate of £200 will be offered from October, with the government covering the cost. The rebate will automatically be deducted from bills in equal installments of £40 over the next five years.

This repayment will start in 2023. Households in England in council tax brackets A to D will also receive a further reduction of £150. These payments will be made by the municipalities from April and do not have to be repaid.

The Government said this one-off payment would benefit around 80 per cent of all households in England and £1billion is more generous and more targeted to lower-income families than a VAT cut on energy bills.

How to reduce energy costs and save money

Traditionally, the solution to rising gas and electricity tariffs has been for customers to seek better deals from a variety of suppliers. But as the energy crisis causes small suppliers to collapse and those that remain to withdraw their best offers, households will have to use other tactics to lower their bills.

Reducing energy consumption, using it at the right time or generating it yourself is becoming increasingly important.

Modifications to your home to improve heat retention could save hundreds of pounds off your energy bills. According to My Utility Genius, a comparison service, about 35 percent of the heat in the average semi-detached home is lost through the walls. Properly installed cavity wall insulation can save up to 15% on heating costs. Insulating floors by filling gaps under baseboards can reduce heat loss by up to 10%.

According to energy company Utilita, the average UK home has 10 idle devices plugged in and on at any one time.

Leaving the 10 most power-hungry products on standby all year costs consumers £2.2bn more than turning them off at the socket. TVs in standby mode cost more than £430m a year in wasted electricity, according to Utilita.

A TV left on standby all year round adds £16 a year to a household’s electricity bill, while a printer or scanner adds £6.50. The amount per device is relatively small, but quickly adds up when multiple devices are left on. Read more energy saving tips here.

This article will be updated with the latest information. Energy price cap to hit £2,800 in October – what it means for you in 2022

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