Ofgem has raised the maximum amount energy suppliers can charge vulnerable consumers on variable tariffs to £1,136 a year, in response to a sharp increase in wholesale energy prices.
The energy regulator’s safeguard tariff limits energy costs for 5 million vulnerable and prepayment meter customers. The cap, which was last assessed in February, will increase by £47 for dual-fuel customers from 1 October.
The safeguard tariff was introduced in April 2017 to cover 4 million consumers and was in February extended to an additional 1 million consumers who receive the government’s warm home discount, a payment for those on certain benefits. It’s designed to protect vulnerable customers from being overcharged by energy companies.
The price cap is adjusted twice a year based on method set by the Competition and Markets authority. April’s increase was £58 per year for dual-fuel tariffs, meaning consumers will see a £105 increase in their energy bills this year. Ofgem attributed the hike to increased oil prices, which in turn have driven an rise in gas prices and the cost of electricity generation.
“Any price rise for customers is unfortunate,” said Dermot Nolan, chief executive of Ofgem. “But while the level of the tariff will rise in October, these customers can be confident that this increase is justified and that their energy bill reflects the real cost of supplying gas and electricity. There are also better deals on the market for those who want to save even more money by switching.”
Following the increase, Ofgem and consumer watchdogs have urged people on standard variable tariffs and those with prepayment meters to take advantage of cheaper fixed price tariffs, which can be hundreds of pounds a year cheaper than standard and default tariffs. Even those using prepayment meters could save over £100 by switching provider, although pre-payment remains the most expensive way to purchase energy.
Ofgem clarified that “because the safeguard tariff caps the price of each unit of energy used, not overall bills, the total amount prepayment customers pay per month will continue to vary based on their consumption.”
The lifting of the cap on the safeguard tariff comes after a series of price hikes have hit nearly all consumers, with all Big 6 and most upstart energy providers increasing bills this year and some doing so twice.
Often continues developing a cap that will limit prices for the remaining 11 million consumers on default tariffs. The cap will be introduced by December, in time for the surge of winter heating bills, and last until 2020, with a possible extension until 2023.