Households in the UK could see an increase in their energy bills as Ofgem considers increasing the price cap to allow for the recovery of additional debt-related costs as a result of the COVID-19 pandemic.
The regulator is consulting on amending the default tariff cap, which would increase household energy bills by £21 per customer from 1st April 2021.
Ofgem reduced the level of the cap by £84 annually from 1st October 2020 following the COVID-19 lockdown, which has significantly affected the energy industry, with workers being laid off, furloughed or working from home, resulting in an increase in domestic energy use.
Some customers are struggling to pay their bills and these impacts could increase over the winter as consumers use more energy.
The default tariff cap protects customers by limiting the amount they can be charged for their gas and electricity, with the level of the cap set to reflect the cost to suppliers.
However, Ofgem says the pandemic has potentially changed these costs in a way that would not be accounted for in the existing cap methodology – specifically related to debt.
It is therefore proposing to make an adjustment for cap period six, i.e. summer 2021, of £21 per customer to the existing price cap of £1,042 a year.
That is expected to help remove some of the pressures on energy companies who are facing high levels of unpaid bills as many households struggle to pay during the pandemic.
Ofgem will publish a final decision early in February 2021 and intends to review the impacts of COVID-19 on the cap in six months’ time.