Your energy price cap rise is funding the cost of 28 suppliers going bust

NimbleFins explains how your energy price cap rise is funding the cost of 28 suppliers going bust.
Man shocked at the price increase of his energy bill

Every household in the UK is paying towards the cost of 28 energy suppliers who have collapsed in the gas price crisis, even if they were not customers of the failed suppliers.

About 10% of the latest energy price cap rise is covering the cost of firms that went bust, industry regulator Ofgem said.

Surging wholesale energy prices due to an increase in demand as economies re-open, coupled with a severe winter in Europe in 2020/21, meant scores of suppliers collapsed this winter, including Bulb and Arvo.

To keep the energy suppliers that are left afloat, the energy price cap will soar by £693 - more than 50% - it was announced earlier this month. From April 1, the price cap will rise from £1,277 to £1,971.

But £68 of that rise is funding the cost of collapsed businesses.

Amid criticism for not controlling market prices better, Jonathan Brearley, chief executive of Ofgem, told the BBC Radio 4 Today programme: "About 10% of the rise was focused on the gas crisis. That's £68 per household.

"That money was focused on making sure everyone in the country, even if their supplier went bust, had access to energy at that price cap. That price cap has protected customers over the course of winter."

The price cap is the maximum an energy supplier can charge an average customer not on a fixed rate tariff, based on estimations of the amount of energy a typical household would use. However, bills can still be higher as the cap is only based on an average user.

In raw figures, electricity will rise from 21p per kWh to 28p, while gas will increase from 4p per kWh to 7p.

The changes come into force in April, but there is likely to be another hefty hike announced in August, hitting families just before winter in October.

To try and help families manage their energy bills, the government has announced a £200 Energy Bills Rebate will be applied to all bills, with households repaying the loan in £40 instalments over five years. But it’s come under criticism with many annoyed the credit will be applied automatically.

A poll by YouGov found 65% said the scheme was not helpful.

In a separate YouGov poll for MoneySavingExpert energy rebate more than half said they would opt out if they could.

Ofgem is looking at reviewing the price cap four times a year rather than two following criticism for not managing staggering price rises. In a statement, Mr Brearley said: “We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.

“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.

“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”

Ofgem advises those struggling to pay their energy bills to contact their suppliers in the first instance.

Click here for information on why your electricity bill is so high or to learn about the current cost of electricity.

Erin Yurday

Erin Yurday is the Founder and Editor of NimbleFins. Prior to NimbleFins, she worked as an investment professional and as the finance expert in Stanford University's Graduate School of Business case writing team. Read more on LinkedIn.


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