UK households will see a slight increase in their energy bills as the energy price cap rises by 1.2% starting in January 2025, the energy regulator Ofgem announced on 22 November 2024. This adjustment, which translates to an average annual increase of £21 for dual-fuel households, comes amid continued fluctuations in global energy markets and evolving consumer choices in the domestic energy sector.
What is the Energy Price Cap?
The energy price cap, introduced in 2019, is a regulatory measure that sets a maximum price per unit of electricity or gas, as well as a limit on standing charges. It is designed to protect consumers from excessively high prices while ensuring suppliers can recover their operating costs. The cap is updated quarterly and applies to households on standard variable tariffs (SVTs), which includes millions of customers paying by Direct Debit, prepayment meters, or
standard credit.
Understanding the January Increase
From January to March 2025, the energy price cap will rise to an average of £1,738 annually for dual-fuel households paying by Direct Debit, up from £1,717 in the previous quarter. For context, this remains 10% (£190) lower than the same period in 2024 and a staggering 57% (£2,321) below the peak during the energy crisis in early 2023.
For those using standard credit—paying after usage—the cap will increase to £1,851, reflecting higher costs due to the payment method’s inefficiencies.
Savings Opportunities in a Growing Market
While the price cap ensures fair pricing for those who don’t switch tariffs, Ofgem is urging consumers to explore the growing number of competitive options. Over the past three months, around 1.5 million households switched tariffs, with many finding savings of up to £140 annually. Fixed-rate deals and tariffs with low or no-standing charges are increasingly available, providing tailored options for different usage patterns.
- Low or No-Standing Charge Tariffs: These are beneficial for households with low energy consumption, as they minimise fixed costs. However, they often come with higher unit rates and may not suit all users.
- Bundled Deals: Some of the cheapest options on the market require signing up for additional services, such as boiler cover, offering potential savings of £210 annually compared to the price cap level.
Reducing Costs Through Payment Methods
Ofgem highlighted significant savings available to customers willing to adjust their payment methods. Households on standard credit tariffs could save £100 annually by switching to Direct Debit or smart prepayment meters, the latter being the most cost-effective way to pay for energy.
Ofgem’s Response to Market Challenges
Tim Jarvis, Ofgem’s Director General of Markets, acknowledged the ongoing challenges many households face with energy costs despite the cap’s stability. He emphasised the importance of exploring competitive deals and improving domestic energy resilience.
“Our reliance on volatile international markets…means the cost of energy will continue to fluctuate. It’s more important than ever to focus on building a renewable, home-grown energy system,” Jarvis said, pointing to the broader push for stability through investment in renewable energy and a transition to net-zero.
Support for Struggling Households
Ofgem reminded consumers that energy suppliers have a legal obligation to support customers facing financial difficulties. Available measures include:
- Affordable payment plans tailored to individual circumstances
- Hardship funds for those in critical need
- Expert advice on energy-saving measures to reduce consumption
Consumer Confidence in a Shifting Landscape
To further protect consumers, Ofgem recently launched a Consumer Confidence Programme, part of its broader Consumer Interest Framework. This initiative aims to ensure transparent pricing, better service quality, and faster assistance for those seeking help with bills.
By redesigning regulations and focusing on consumer outcomes, the framework seeks to build trust in the energy market as it undergoes significant transformation.
Key Takeaways for UK Energy Consumers
- January Increase: The 1.2% rise in the price cap is modest but still an added burden for many. For an average household, this means an increase of £1.75 per month.
- Savings Potential: Households willing to switch tariffs or payment methods can potentially offset this rise and save significantly, with deals offering annual savings of £140 to £210.
- Market Growth: With more suppliers offering diverse tariffs, customers are better positioned to find deals tailored to their needs, especially those with lower energy usage.
- Continued Challenges: The energy sector remains vulnerable to international market fluctuations, underscoring the need for a transition to renewable energy to stabilise prices long-term.
Next Steps for Consumers
To mitigate rising costs, Ofgem advises customers to:
- Shop Around: Compare tariffs and consider switching to one that better suits your household’s needs.
- Review Payment Methods: Switch from standard credit to Direct Debit or smart prepayment meters to save on bills.
- Seek Support if Needed: Contact your supplier for assistance with payment plans, hardship funds, or energy-saving advice.
Top tip: Switching to a more efficient heating system can drastically reduce your monthly bills. In the UK there are grants available that can help cover the cost of a new heating system, including renewable heating systems.
As the UK navigates its energy future, Ofgem’s latest measures and guidance underscore the importance of consumer action in an evolving market.
Written by Ciaran Wark
