The Latest Ofgem Price Cap and Its Impact on UK Households

Kate McCann
January 7, 2025

The latest Ofgem price cap has come into effect as of January 1st 2025, impacting millions of households across the England, Wales and Scotland. This adjustment reflects changes in the maximum amount energy suppliers can charge consumers on standard variable tariffs.

What Is the Energy Price Cap?

The energy price cap sets a limit on the price per unit that suppliers can charge for gas and electricity. It’s designed to protect consumers from excessive charges and is reviewed quarterly by Ofgem. The cap is based on a “typical household” consumption, defined as using 11,500 kWh of gas and 2,700 kWh of electricity annually, paying by direct debit.

Recent Changes and Their Implications

Between 1 January and 31 March 2025, the price cap has been set as follows:

– Gas: 6.34p per kilowatt-hour (kWh)

– Electricity: 24.86p per kWh

For a typical dual-fuel household paying by direct debit, this translates to an annual bill of approximately £1,738, marking an increase of £21 from the previous cap. Households that settle their bills quarterly by cash or cheque will face higher annual costs, around £1,851.

Why the Increase?

The adjustment in the price cap mirrors fluctuations in wholesale energy prices and other associated costs that suppliers encounter. While there have been periods of decline, recent trends indicate a rise, necessitating this cap increase to ensure suppliers can cover their expenses while maintaining consumer protection.

Impact on Households

This rise means that many households will experience higher energy bills during the first quarter of 2025. Given the winter season, when energy consumption typically peaks, it’s crucial for consumers to be aware of these changes and consider measures to manage their energy usage effectively.

Steps to Mitigate the Impact

1. Submit Meter Readings:
Ensure you provide up-to-date meter readings as the new cap comes into effect. This practice guarantees accurate billing, preventing overestimation based on previous higher rates. Customers with smart meters, which automatically send readings to suppliers, do not need to submit readings manually.
2. Consider Fixed Tariffs:
While the price cap offers some protection, exploring fixed-rate energy tariffs can provide stability in your energy costs. However, it’s essential to assess the terms carefully, as fixed deals may come with exit fees or other conditions.
3. Enhance Energy Efficiency:
Investing in energy-efficient appliances, improving home insulation, and adopting energy-saving habits can reduce consumption, thereby lowering bills.
4. Seek Financial Assistance:
If you’re struggling with energy costs, various grants and support schemes are available to assist vulnerable households. Contact your energy supplier or visit the government website for more information.

Looking Ahead

Analysts anticipate that energy prices may experience slight declines in April and October 2025. However, the consensus suggests that elevated domestic energy prices could become the norm. Staying informed about market trends and regularly reviewing your energy tariff can help you make cost-effective decisions.

In conclusion, while the recent Ofgem price cap adjustment leads to higher energy bills for UK households, understanding its implications and taking proactive steps can help mitigate its impact. Regularly reviewing your energy consumption, considering tariff options, and seeking available support are key strategies in navigating these changes.