Energy prices for millions of Britons are expected to rocket from October after the energy regulator said it would increase its cap on the most widely used tariffs by about 12-13%, mainly because of soaring wholesale prices.
A cap on electricity and gas bills came into effect in January 2019 and was aimed at ending what former British Prime Minister Theresa May called “rip-off” prices charged by energy companies.
“This increase is driven by a rise of over 50% in energy costs over the last six months, with gas prices hitting a record high as the world emerges from lockdown,” regulator Ofgem said in a statement.
Ofgem calculates the cap using a formula that includes wholesale gas prices, energy suppliers’ network costs and costs of government policies such as renewable power subsidies. The cap is updated twice a year.
Since the previous cap update announced in February many British wholesale gas contract prices have almost doubled.
Gas prices have soared globally this year owing to factors including low stock levels, outages at gas plants and gas fields curbing domestic supply and imports from Norway while a buying spree in Asia has led to fewer international deliveries of liquefied natural gas (LNG).
With wholesale energy prices accounting for about 40% of an average dual-fuel (gas and electricity) bill, Ofgem said there was no option but to make a significant increase to the cap.