Why are energy prices rising? Here's why energy is so expensive in 2022
Ofgem, the UK’s energy regulator, has announced that energy bills for 15 million households will likely increase once again in October – here’s what you need to know.
The energy price cap is expected to increase by a further £830 to £2,800 in October, the head of Ofgem said as a charity warned the hike will plunge households into a "deep, deep crisis".
Ofgem chief executive Jonathan Brearley told MPs the regulator is expecting an energy price cap in October "in the region of £2,800" as the market copes with "once-in-a-generation" price changes "not seen since the oil crisis of the 1970s".
Here’s what you need to know about the rise in energy prices and how much your energy bills will increase by in October.
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What is the Ofgem energy price cap?
The price cap on energy prices was established by the energy regulator in 2019 to ease the financial burden of climbing energy costs on UK households.
It affects those on standard tariffs rather than households who commit to fixed tariff plans, with suppliers of fixed rate energy plans not subject to the price cap.
Standard tariffs, also known as default tariffs, have variable prices – meaning that your energy company can vary the amount they charge for their energy.
But per the terms of Ofgem’s price cap, energy bill items like standing charges and prices for gas and electricity units cannot be unduly hiked in price by energy suppliers.
The price cap is reviewed once every six months, with the cap level set for winter and summer energy prices based on the energy market costs causing your bill to rise or fall.
Energy bill costs can also vary based on usage, where you live, whether your bill by standard credit, direct debit or prepayment as well as your type of energy meter.
Why are energy prices rising?
The rise in energy prices has been driven by a rise of more than 50% in energy costs over the last six months, with gas prices hitting a record high as inflation jumped amid the easing of pandemic restrictions.
Ofgem chief executive Jonathan Brearley said: "Higher energy bills are never welcome and the timing and size of this increase will be particularly difficult for many families still struggling with the impact of the pandemic.
"The price cap means suppliers only pass on legitimate costs of supplying energy and cannot charge more than the level of the price cap, although they can charge less.
"If you're struggling to pay your bill you can get in touch with your supplier to access the help that's available and, if possible, shop around for a better deal.
"I appreciate this is extremely difficult news for many people. My commitment to customers is that Ofgem will continue to do everything we can to ensure they are protected this winter, especially those in vulnerable circumstances."
How much will my energy bill increase by?
Ofgem's prediction is a further 42% hike on April's price cap increase of 54%, or an increase of £693 a year to £1,971 for those on default tariffs paying by direct debit for the average household.
Mr Brearley said future scenarios could include energy prices going even higher if Russia further disrupts gas supplies.
Additional reporting by PA.