Approximately 22mn customers will be affected by the price cap raise. Customers with typical usage on default dual-fuel tariffs, and who pay by direct debit, will see their bills increase by £693 to £1,971 per year. Meanwhile, bills for people on prepayment solutions will increase by £708 from £1,309 to £2,017. 

Both default tariff customers who have not switched to a fixed deal and those remaining with their new supplier after their previous supplier exited the market will be affected by the change. 

Ofgem’s price cap helps to ensure that customers do not pay more than a fair price for their energy by tracking wholesale energy and other costs. It prevents energy companies from making excessive profits but also enables energy companies to pass on increases in the price of buying gas and other reasonable costs to their customers.

Currently, the price cap is updated biannually. The last time it was updated was in August 2021. Since then, gas prices have experienced a record rise, a once in 30-year event says the regulator, forcing 29 energy companies to exit the market or go into special administration. 

To support households with skyrocketing bills, Chancellor Rishi Sunak has announced a £9bn Energy Bills Rebate. This includes providing all domestic electricity customers with £200 off their energy bills from October – which will eventually be repaid when energy prices fall – and offering £150 to lower-income families. 

However, even taking this into account, energy bills will still rise by 27%, the largest increase since records began, according to the End Fuel Poverty Coalition, adding that this could force more than 1mn homes in England into fuel poverty.

Speaking on behalf of energy suppliers, Energy UK Chief Executive Emma Pinchbeck said: ‘Suppliers will continue to do all they can to help and support customers, especially the most vulnerable, but a rise of this scale needs the government to step in. We very much welcome the support for customers announced by the Chancellor today, but with no sign of wholesale prices falling and bills likely to remain high through the autumn, our concern for millions of customers, as well as the stability of the retail sector, remains.’

To reduce the impact on vulnerable households, there has been some support for a windfall tax on the oil and gas companies who have profited from the high gas prices. For instance, Shell reported that its annual profits had quadrupled in 2021 to £14bn whilst BP’s CEO Bernard Looney described the energy price crisis as a ‘cash machine’ for his company, following profits of £9.5bn last year. 

However, just hours after Shell published its annual report, Sunak explicitly ruled out a windfall tax and instead called for greater investment in North Sea oil and gas.

Other experts have drawn attention to an accelerated switch to renewable power generation as a solution to fossil fuel price volatility.

Unite General Secretary Sharon Graham commented: ‘The energy price cap rise will turn the cost-of-living crisis into a catastrophe for millions of people. This will plunge at least one in four families in Britain into fuel poverty… Without government investment in sustainable domestic sources, such as new nuclear and renewables, the UK public, as well as the economy, will continue to be at the mercy of unstable energy markets.’

Michael Bradshaw, Professor of Global Energy at Warwick Business School took a longer-term view: ‘In 2030, we may look back of the energy price crisis of 2021–22 as the inflection point at which clean energy made a breakthrough and the resulting acceleration of the energy transition meant that the price spikes earlier in the decade were the last hurrah for the fossil fuel industries as the world emerged from the pandemic and struggled to match energy supply and demand.’