Price Cap Rises to £1971

Written by Ian Barker Small headshot image of Ian Barker, Managing Partner at BFY Group.
03 Feb 2022
Energy Market

Shakespeare’s Richard III proclaimed that “Now is the winter of discontent”; with the announcement this morning of Ofgem’s price cap level for summer 2022, are we now heading towards a summer of discontent?

The widely reported, and much-speculated, Ofgem price cap was finally revealed this morning to be £1,971 per year for an average dual fuel customer paying by Direct Debit; an annual increase of more than 50% compared to the current cap level. For consumers this is a further blow to household expenses, with National Insurance rises planned for April, petrol and diesel close to £1.50/litre and CPI sitting at a 13-year high.

An annual bill of £1,971, equates to approximately £700 for the summer months, or a Direct Debit of £115 per month, due to typically low consumption. This is in comparison to an average Direct Debit for the current winter period of £130. The effect of low summer consumption will to a substantial extent limit the immediate impact on household budgets. But it will stop the usual cycle of building up credit balances in the summer, that would normally smooth out the much higher costs in winter.

The question then is, what does next winter look like? With wholesale energy prices remaining stubbornly high, there appears to be no let up for customers. Whilst the announcement of next winter’s price cap is still 6 months away, the process of calculating the cost has already begun. Based on current estimates, prices could rise further to c£2,400 per year, for a typical Direct Debit customer. That could see monthly payments hit £250, an unfathomable 115% increase on summer payments.

Whilst today’s announcement may not necessarily be felt immediately in people’s pockets, the longer-term impact of rising energy costs will be felt later in the year. It is fair to say then that we are not just looking at a summer of discontent, but rather a year of discontent.

Ian Barker

Ian shapes the BFY vision and inspires our team to bring it to life, while remaining central to complex client engagements in Strategy, Commercial, and Operations.

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Small headshot image of Ian Barker, Managing Partner at BFY Group.