Ofgem published the updated default tariff cap levels for charge restriction period 9a on 26 August 2022, covering the three months from 1 October 2022 to 31 December 20221. The level of the cap for a dual fuel, direct debit customer rose by 80 per cent to £3,549 a year, calculated using the latest Typical Domestic Consumption Values1. The previous level, for 1 April 2022 to 30 September 2022, was £1,9712.
The regulator attributed the increase mainly to wholesale costs, which rose by £1,391 since the last update, citing the invasion of Ukraine by Russia and the subsequent political fall-out, record high prices around the beginning of the invasion, and volatility each time Russia reduced gas flows to Europe1. It also allowed £46 per customer per year for unexpected standard variable tariff demand costs incurred over cap period eight, and £143 per customer per year for backwardation costs1. Network costs rose by about £1 overall1.
The cap level differs by payment method. Ofgem said the standard credit cap level would be £3,764, an increase of £1,663, and the prepayment meter cap level would be £3,608, an increase of £1,5911. Standard credit customers pay an additional £215 compared with direct debit, and prepayment customers an additional £59, primarily reflecting the higher cost for suppliers to serve them1. The unexpected SVT cost allowance of £43 does not apply to the prepayment cap1.
| Payment method | Cap level from 1 October 2022 | Increase |
|---|---|---|
| Direct debit | £3,549 | £1,578 |
| Standard credit | £3,764 | £1,663 |
| Prepayment meter | £3,608 | £1,591 |
Ofgem's letter set out the change in the basis on which the cap is updated:
"In August 2022, Ofgem decided the Default Tariff Cap will be updated on a quarterly basis rather than every six months."
The cap sets maximum prices, not maximum bills: what an individual household pays varies with how much energy it uses, where it lives and how it pays, and does not depend on the supplier1. Ofgem does not set a dual fuel cap; caps are set for each fuel separately, and the dual fuel figure is the combined effect of the gas and electricity caps at typical consumption1.
The charity National Energy Action said the rise had increased the number of UK households in fuel poverty from 6.5 million to 8.9 million3. The Resolution Foundation said monthly energy bills could be three times higher this winter than last year, at around £500 a month, and that typical bills in January alone could hit £714 for prepayment customers4. E3G said households in homes rated D or worse face bills £1,000 a year higher than those in homes rated C or better5.
Why it matters for households
The cap level is a unit rate limit, so a household using more than the typical consumption values will pay more than £3,549, and one using less will pay less1. The gap between payment methods means the same consumption costs more on standard credit or a prepayment meter than by direct debit1. Because the cap now moves quarterly rather than every six months, the level in force from 1 January 2023 will be set on a shorter cycle than before1. For a home's energy independence, the wholesale cost component, which rose from £1,077 to £2,491 between period eight and period 9a, is the part most exposed to gas market conditions, while network, policy, operating and other indexed components make up the remainder1. The cap does not cover the cost of reducing consumption through insulation or other measures; E3G's £1,000 figure compares bills in homes of different energy ratings rather than measuring a saving from any particular installation5.
What happens next
The cap period 9a levels run from 1 October 2022 to 31 December 20221. The adjustment allowance applied from 1 October 2022 runs for a 12-month period1. On 8 September 2022 the Government announced a temporary price capping measure, the Energy Price Guarantee, to be implemented from 1 October 2022 to 31 March 2023, which superseded the default tariff cap2.
Sources5 cited
- Default tariff cap update from 1 October 2021, ofgem.gov.uk
- Subject:, researchbriefings.files.parliament.uk
- National Energy Action: “A warm home this winter will be pipedream for millions as they are priced-out of a decent and healthy quality of life” - National Energy Action (NEA), nea.org.uk
- Soaring price cap means energy bills are set to treble this winter to around £500 a month – and over £700 in January alone • Resolution Foundation, resolutionfoundation.org
- UK government must launch retrofit revolution to save leaky homes £1000 - E3G, e3g.org