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What is the purpose of the U.K energy price cap

 Introduction

The UK energy price cap was introduced in January 2019 and was designed to protect 11 million households from being overcharged for their gas and electricity. The cost of energy had been rising for several years, and the price cap was meant to ensure that prices didn’t continue to increase at an unsustainable rate. 

The price cap was also designed to increase competition in the energy market. By capping the prices that energy companies could charge, it was hoped that new and smaller energy suppliers would enter the market, leading to greater choice for consumers. 

The price cap has been controversial, with some critics saying that it doesn’t go far enough to protect consumers and that it will lead to higher prices in the long term. 

Energy price cap update schedule

The price cap on energy bills is usually updated every six months, based on the UK energy regulator Ofgem’s estimates of the costs faced by energy suppliers. The price cap only limits the price charged per unit of energy, not the overall bill a customer pays, which depends on overall use.

Past price cap increases and their amount

The first default tariff cap in January 2019 was £1,104, before it fluctuated over time and reached £1,277 by October 2021. In April 2022, this rose to £1,971 and the latest forecasts suggest it will increase to £3,582 in October 2022 and £4,266 in January 2023. Ofgem will now set a new cap every three months instead of every six months due to the rapid rate of change in costs. This means that prices could rise more quickly, but it also means that in the future.

This dramatic rise has several reason 

 First, wholesale energy prices increased significantly from mid-2021 (meaning energy suppliers had to pay more to buy gas and electricity). This was due to growing global demand post-lockdown and other supply issues relating to gas in particular. 

Russia’s invasion of Ukraine inflated prices further as Russia cut gas supplies to European countries, who are themselves trying to reduce their reliance on Russian gas. Wholesale gas prices are now ten times higher than they were a year ago.

What's the effect on customers?

Energy price rises may make it difficult for some people to afford to keep their homes at an adequate temperature, known as fuel poverty.

E.on UK suggests that one in eight households are struggling to pay their bills and this number could rise to 40% by October when the new price cap kicks in.

The NHS has warned that without further government action to limit price increases, growing numbers of people will see their health worsen.

What might bills look like in the future?

The typical bill under the existing price cap is £1,971 a year, or £2,017 for the 4.5 million households with a prepayment meter.

The rise in October to £3,549, or £3,608 for those on pre-payment meters, is an 80% increase.

Analysts at Cornwall Insight forecast further increases in January, when the price cap is updated again. They say the typical bill will then be £5,386 a year and that more rises will follow.

However, Ofgem says predictions of future price cap levels are "very uncertain".

 Here is how UWA Utility warehouse manages the energy price cap situation

In the wake of the largest energy price hike in a generation, UW is a sustainable multi-service provider that takes care of its customers.

They guarantee to beat the Government's energy price cap calculation by up to 5% , which will save customers over $20 million this year alone.

No matter if you are new to UW , or have been with them for years, they promise to keep their prices lower than the price cap.

In addition to energy , UW spread its costs across a number of essential household services.

Customers of UW can take advantage of great broadband , mobile and insurance deals.

They are offering customers the chance to beat the price cap and fix their energy prices until july 2023.

They are offering a fixed price energy tariff , available with the purchase of two or three other services , that will cost the typical customer $2,850 a year or $2,450 including the government rebate of $400.

Conclusion

The U.K energy price cap is designed to relieve the burden of higher energy costs for U.K households and small businesses, and help the U.K government achieve its goal of cleaner, cheaper and more reliable energy. Through the energy price cap, U.K households and small businesses will be able to save about £100 per year on their energy .