Energy price cap to be reviewed quarterly instead of every six months
Ofgem will review energy price caps more frequently to provide more stability to energy market
Ofgem say they will review the energy price cap every three months rather than every six months, to provide stability in the energy market. They warned that customers face a "very challenging winter ahead".
Ofgem also added that "It is not in anyone's interests for more suppliers to fail and exit the market."
After Russian invasion of Ukraine, the global energy market has been suffering ”with much higher prices for both gas and electricity than ever before".
As expected, Ofgem warned that as a result of the market conditions, the price cap would have to increase later this month to reflect increased costs.
However it said that the changes would mean that any fall in wholesale prices would be passed on in full to customers and more quickly with the quarterly price cap.
Ofgem is working closely with Government to help with these higher prices
Ofgem chief executive Jonathan Brearley said: "I know this situation is deeply worrying for many people. As a result of Russia's actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before. And that means the cost of supplying electricity and gas to homes has increased considerably.
"The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now. Today's changes ensure the price cap does its job, making sure customers are only paying the real cost of their energy, but also, that it can adapt to the current volatile market.
"We will keep working closely with the Government, consumer groups and with energy companies on what further support can be provided to help with these higher prices."
Brearley added that more significant increases in prices are to be expected as the market is dramatically changing.
Household energy bills likely to remain at more than two-and-a-half times their pre-crisis levels
Changes to the price cap come as household energy bills are likely to remain at more than two-and-a-half times their pre-crisis levels until at least 2024, according to latest predictions.
Cornwall Insight, one of the country's most respected energy consultancies, said bills will hit a staggering £3,359 per year from October for the average household, and not fall below that level until at least the end of next year.
The price cap on energy bills, which regulates what 24 million British households pay, will hit £3,616 from January and rise further to £3,729 from April, it said.
It will begin to fall after that, but only slowly, reaching £3,569 from July before hitting £3,470 for the last three months of 2023.
The latest predictions are hundreds of pounds above previous forecasts from Cornwall Insight, but are slightly lower what another consultancy, BFY, has predicted.
In May, the Government announced an energy costs support package - worth £400 per household - in response to predictions that bills would rise to £2,800 for the average household in October.
The package also promised extra support for more vulnerable households.
Last month, Cornwall Insight predicted that annual energy bills would typically rise to £3,244 from October and £3,363 from January, but circumstances have changed significantly since then.
Russian Government further strangles the flow of gas to Europe.
The latest forecasts come after the Kremlin further strangled the flow of gas to Europe.
While the UK gets very little of its gas directly from Russia, the price paid here is determined by what happens across the Continent.
If the predictions come to pass they will put enormous pressure on already squeezed households.
It would be a near-doubling of today's record price cap which at £1,971 is already hundreds of pounds more than the previous high.
Although it is still early days for the January prediction, analysts already have most of the data they need to accurately forecast October's rise.
National Energy Action director of policy and advocacy Peter Smith said: "Ofgem moving ahead now with passing price cap changes on to households quarterly rather than every six months wasn't necessary and unfortunately means further significant price increases in January are inevitable.
"Average annual bills are already predicted to increase by £1,200 a year - a 177% increase since last October. Now, householders can expect further hikes just after Christmas, in the middle of heating season when energy costs are typically at their highest.
Mental health concerns among poorest households
"January is also usually a time of increased mental health problems and further hikes in bills will sadly lead to increased misery and huge anxiety for energy consumers across Great Britain, particularly for the poorest households. It's disappointing that Ofgem has not listened to these concerns. They could have used their discretion to offset this avoidable outcome by starting the reforms in April when energy demand starts to fall.
"This change also strengthens the growing calls for deeper price protection for the poorest households, something Ofgem can and must help support."
Gillian Cooper, head of energy policy at Citizens Advice, said: "Something that's added to all our bills is the cost of supplier failures. Changing to a quarterly price cap should limit the risk of any more suppliers going bust, which is a good thing. But our bills are already incredibly high and still rising."
"The Government was right to bring in financial support for people, but it may not be enough to keep many families afloat. It must be ready to act again before winter draws in."
"Ofgem must make sure suppliers are helping customers who are struggling to pay. It should hold energy companies to account so people aren't chased by debt collectors or pushed onto prepayment meters when they can't keep up with bills."
More on the cost of living:
Interest rates and inflation go up
Inflation rose by 8.8% in the 12 months to January 2023, down from 9.2% in December 2022. With interest rates also rising to 4%, those saving money will earn more interest on their finances, whilst those paying mortgages would pay more interest to the bank.
Energy bills
The price of energy went up incredibly as the cost of living crisis hit, with the gas price spike caused largely by the war in Ukraine. The price cap - which is set by an independent regulator to help offset costs onto customers - was set to rise to £3,549 for an average home in October but a price freeze from the government restricted the typical bill to £2,500. That's still an increase of 27% from the previous energy cap and as it's a cap on unit cost, the more energy you use the higher your bill will be.
Food prices
The cost of a weekly shop also has gone up as a result of the cost of living crisis. As a result of the war in Ukraine, a number of products including cooking oils and wheat have been disrupted. This means that several products are now considerably more expensive, driving bills up for customers.
Prices at the pumps
The average cost of petrol has also rose to unprecedented levels. Supply lines for petrol have been thrown into doubt as a result of the war in Ukraine, as Russia is a large export partner for gas, oil and fuel. In April 2022, the average price for a litre of petrol on the forecourt was 160.2p, whilst a litre of diesel would cost 170.5p. By late June 2022 the price had risen to an average of 190.9p for a litre of unleaded and 198.9p for a litre of diesel. In March 2023 the price wass on average of 147.03 in petrol and 167.04 in diesel.
Average cost of filling up a car with petrol hits £100
On 9th June 2022, the average cost of filling up a car with petrol hit £100 for the first time ever. Diesel had already hit that milestone. It comes as the cost of fuel hit a record high of one pound eighty a litre. The 2p rise was the biggest daily jump in 17 years. Prices have dropped by at least 20p per litre since the high point.