Ofgem has confirmed the energy price cap will be updated quarterly, rather than every six months, as it warned customers face a “very challenging winter ahead”.
The regulator said the change would go “some way to provide the stability needed in the energy market”, adding: “It is not in anyone’s interests for more suppliers to fail and exit the market.”
It comes on the same day the Bank of England implemented the largest hike in interest rates since 1995 and warned the UK would enter recession this winter for more than a year.
Ofgem said Russia’s actions in Ukraine had led to volatility in the global energy market experienced last winter lasting “much longer, with much higher prices for both gas and electricity than ever before”.
As expected, Ofgem warned that as a result of the market conditions, the price cap would have to increase later this month to reflect increased costs. Energy market analysts Cornwall Insight forecast a typical household’s energy bill will be well over £3,000 a year for the next 15 months.
The experts predicted the price cap hike in October will be £3,359 before it rises even further to £3,616 in January.
However, Ofgem said that the changes would mean that any fall in wholesale prices would be passed on in full to customers and more quickly with the quarterly price cap.
Scotland’s national advice service, Advice Direct Scotland, said the impact of the change would be watched with interest.
“What is beyond doubt is that there are some incredibly challenging months ahead for households,” said Conor Forbes, director of policy with Advice Direct Scotland.
“Unfortunately, bills are going to soar in October just as winter arrives – and we can expect further rises in January.”
On the announcement, Citizens Advice Scotland’s chief executive Derek Mitchell said: “The move to a quarterly price cap could mean that energy costs will increase more frequently and see a rise in the middle of winter.
“While we understand the benefit of more up to date prices being reflected in the cap, it will be harder for some people to budget if prices change more frequently.”
But Ofgem’s chief executive Jonathan Brearley defended the change saying he knows the situation is “deeply worrying” for many people.
“As a result of Russia’s actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before,” he said.
“And that means the cost of supplying electricity and gas to homes has increased considerably.
“The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now. Today’s changes ensure the price cap does its job, making sure customers are only paying the real cost of their energy, but also, that it can adapt to the current volatile market.
“We will keep working closely with the Government, consumer groups and with energy companies on what further support can be provided to help with these higher prices.”