LONDON, Aug.6 (Reuters) – Energy prices for millions of Britons are expected to skyrocket from October after the energy regulator announced it would raise the cap on the most commonly used tariffs around 12 to 13%, due to soaring global gas prices.
A cap on electricity and gas bills went into effect in January 2019 and was aimed at ending what former British Prime Minister Theresa May called a âscamâ of prices charged by energy companies.
Ofgem said the rise was due to a 50% increase in wholesale energy costs over the past six months.
“We cannot ask companies to sell energy for less than it costs them to buy it,” said Jonathan Brearley, chief executive of Ofgem, in a briefing with journalists.
Consumer groups have warned the hike will come at the worst possible time in the fall, as the leave scheme, designed to support employment throughout the coronavirus pandemic, comes to an end and additional aid to the universal credit benefit is abolished.
Ofgem said anyone worried about paying their bills should contact their supplier and said customers could save money by looking for a new deal.
“It will not be heartwarming for those who are now faced with the difficult choice between heating and eating,” said Simon Francis, coordinator of the End Fuel Poverty Coalition.
Ofgem calculates the cap using a formula that includes wholesale gas prices, network costs of energy suppliers and costs of government policies such as renewable energy subsidies. The cap is updated twice a year.
Since the previous cap update announced in February, many UK wholesale gas contract prices have doubled. Read more
Gas prices have skyrocketed around the world this year due to factors such as low inventory levels, blackouts at gas works and gas fields limiting domestic supply and imports from Norway, while a buying frenzy in Asia led to a decrease in international deliveries of liquefied natural gas (LNG). Read more
With wholesale energy prices accounting for around 40% of an average dual fuel (gas and electricity) bill, Ofgem said there was no choice but to significantly increase the cap.
The price cap was originally scheduled to end in 2023, but the government said last month it would prepare legislation to allow it to continue beyond that date.
Brearley said he would welcome an extension.
âDespite the fact that we are raising the price cap today, we know that this takes away some of the profits that we were seeing in the market before,â he said.
Reporting by Susanna Twidale; Editing by David Goodman and Emelia Sithole-Matarise
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