Energy regulator Ofgem announced on 23rd November that the Energy Price Cap will rise by 5% in January 2024. This means an average household will pay another £16 per year – approximately £1.33 a month on top of already highly inflated energy costs.
Why is it increasing?
The energy price cap rise is in response to increases in the international wholesale energy market due to global events, including the conflict in the Ukraine and the instability in the Middle East.
The price-cap was introduced to ensure consumers pay a fair price for their energy. However, the price must be realistic in terms of covering operating costs for the energy companies. In addition to covering the wholesale costs of gas, it must also allow for maintaining the pipes and wires that carry gas and electricity, billing customers, providing metering services as well as any policy charges.
Despite general belief that energy companies as profiteering bullies, the Price Cap only allows 2% for energy supplier earnings – whereas 9% is allocated to support government schemes to help households save energy, reduce emissions and to encourage homes to invest in green energy technology such as solar panels.
The hidden cost of the energy company insolvencies
In addition to the above costs there is also an adjustment allowance which is a provision for any unexpected costs. As moneysupermarket.com has highlighted, the most recent rise includes the cost to the industry of all the energy companies which have gone bust – which has added an additional cost of £19 per year to a typical household. This is a hidden cost to the consumer of the mismanagement of many of the new to market energy companies which went bust and reinforces the need to recoup any unpaid bills in the administration process to avoid people settling debts for others energy usage.
Protecting the Vulnerable
The rise in the price-cap comes alongside Ofgem’s introduction of new rules to protect vulnerable customers. Energy firms must now contact vulnerable customers if they miss two monthly or one quarterly payment to see if they are struggling to pay their bills. These customers are now required to be offered payment plans or breathing space if appropriate.
About Barratt Smith Brown
Leicester based Barratt Smith Brown, has already established a strong reputation for providing market-leading debt collection support to the utilities sector. Leveraging CEO Ashley Barratt’s 15 years of experience at Centrica, they have not only provided outsourced support to key industry players such as Business Stream, Bristol Energy and Shell, but have taken a lead role in managing collections for UK energy administration collections – handing over 75% of energy administration cases since 2018. Their expertise in energy administrations led to their key role in helping The Citizen’s Advice Bureau develop their Supplier of Last Resort – Good Practice Guide.