Energy regulator Ofgem has today announced a rise in the domestic energy price cap. From January 1, 2025, the annual bill for a dual-fuel household is set to rise to £1,738 – 1.2% higher than the current price cap.

The increase reflects the ongoing pressures from elevated wholesale energy costs, and according to experts will provide stability in comparison to last year's fluctuating prices. However, the rise could negatively impact millions of households and businesses that are already struggling with high energy costs.

What is the Energy Price Cap?

Introduced in 2019, the energy price cap limits the rates energy suppliers can charge customers on standard variable tariffs, regardless of whether you use a prepayment meter or pay via direct debit. The rate is reviewed quarterly to ensure fair pricing reflected by market trends and supplier costs.

However, the cap does not completely protect consumers from rising bills. A household’s total energy costs will vary depending on consumption, which is typically more in winter.

Impact on Households

According to Ofgem, the price cap increase will see an extra £21 added to the bills of a typical household. Though smaller than previous hikes, it comes amid soaring living costs, leaving vulnerable groups such as low-income families and pensioners particularly affected.

To address affordability challenges, households can access a range of support schemes:

Warm Home Discount: Offers eligible households £150 off their winter electricity bill.

Winter Fuel Payment: Provides pensioners with one-off payments for heating costs.

Energy Supplier Assistance: Many suppliers offer payment plans and grants to customers in financial hardship.

Households can also reduce costs by improving energy efficiency, such as using energy-saving appliances, insulating homes, or adopting smart meters.

Impact on Businesses

Although the price cap was created for domestic consumers, its effect ripples across the business sector. Small and medium enterprises (SMEs), particularly those on variable or renewal tariffs, are likely to face rising operational costs.

Energy-intensive industries like manufacturing, hospitality, and retail are especially vulnerable.

Rising energy costs may compel businesses to raise prices, impacting their competitiveness and profitability.

To help reduce energy expenses, businesses can explore cost-saving strategies, including energy audits, renewable energy adoption, or renegotiating supplier contracts.

Future Price Caps

Energy experts predict the energy price cap will fall during the next quarterly review in April 2025. Early analysis foresees a potential decrease of 1%, reducing the annual energy bill for a typical household to £1,697.

However, long-term pricing remains uncertain due to factors like global market volatility, geopolitical tensions, and the pace of renewable energy adoption.

To ensure stability, the UK must accelerate investments in renewable energy, enhance storage capabilities, and diversify energy sources to reduce reliance on imports.

What Can Consumers and Businesses Do?

Both households and businesses can take proactive steps to mitigate rising energy costs:

Review Tariffs: Compare and switch to fixed-rate deals where available.

Energy Efficiency: Implement cost-saving measures such as insulation, LED lighting, or smart energy systems.

Access Support: Explore government schemes, grants, and supplier assistance for financial aid.

Stay Informed: Monitor updates on future price cap changes to anticipate cost fluctuations.

Energy consultancies like Direct Business Solutions can help you procure the best energy options for your business needs, saving you time, resources, and money, as well as helping you minimise energy waste via our innovative tools such as Industrion.

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Ofgem’s latest price cap increase reflects the ongoing struggle to balance energy affordability with supplier sustainability. While the cap offers some consumer protection, rising costs pose challenges for households and businesses. By accessing available support, improving energy efficiency, and advocating for systemic changes in energy policy, the UK can work towards a more stable, affordable, and sustainable energy future.