Ofgem Energy Price Cap to rise 5% in January 2024: what it means for your energy bills

A graph line rises in front of a picture of a smart meter and kettle (images: Getty Images)

The energy price cap will rise by 5% in January, energy regulator Ofgem has announced this morning. Here’s what it means for your bills.

The price cap changes every three months and is increasing due to rising wholesale costs. It affects everyone on a standard tariff – essentially everyone not on a fixed tariff – which is most of the country right now. However, there are hopes that the price cap will fall back again over the rest of 2024.

From 1 January, the price cap will be set at an average £1,928 a year for a typical dual fuel household paying by direct debit. The current rate works out as £1,834 a year. And remember, it’s the rates that are capped, so if you use more, you’ll pay more than this figure.

For homes with a prepayment meter, the January price cap will be £1,960 a year for a typical household. However, this rate will be part-subsidised by the government. It means pay as you go customers will not have higher bills than those on a direct debit.

It comes two years into the UK’s worst energy crisis for a generation. While bills have fallen from their peak, they remain significantly higher than they did in 2021 – and most will be paying more for their bills than last winter, with no Government support this time around. Currently, the best way to save money is to cut your energy usage.

We have all the latest deals and tips in our energy comparison piece. If you’re struggling to keep up with your gas and electricity costs, visit our help with energy bills guide.

So, what does the new Ofgem energy price cap mean for your bills? Here’s everything you need to know.

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‘It’s going to be even tougher for households to heat their homes this winter’

Look After My Bills Editor-in-Chief Gary Caffell says: “This new price cap comes as no surprise as we’ve been warning a rise was on its way for several weeks. But that doesn’t make it any easier to take. It’s going to be even tougher for households to heat their homes this winter and beyond. 

“Without the £400 Government support all households received last winter, most were already going to be paying more for their bills. And this price cap increase compounds the issue.

“The glaring omission from the Chancellor’s Autumn Statement yesterday was any form of energy bill support to help the most vulnerable households this winter.  Without government intervention, even more households will be dragged into fuel poverty. And even more vulnerable households will face the stark, heartbreaking choice between heating and eating.

“If you’re struggling to pay your bills, make sure you’re getting all the help and support you’re entitled to. Let your energy supplier know as soon as possible. They can give you access to hardship grants or set up payment plans based on your circumstances. There are also Government schemes, such as the warm home discount and cold weather payments for those claiming certain benefits, so do check if you’re eligible.”

What are the new price cap unit rates and standing charges?

The new Ofgem cap for the period between 1 January 2024 and 31 March 2024 is £1,928 a year. Here’s how the new cap looks when it comes to unit rates (note that these are a UK average as unit rates vary in different parts of the country):

Current energy price cap rates from 1 October to 31 December 2023 New energy price cap rates from 1 January to 31 March 2024
Gas Unit rate: 6.89p per kWh. Standing charge: 29.62p per day Unit rate: 7.42p per kilowatt hour (kWh). Standing charge: 29.60p per day
Electricity Unit rate: 27.35p per kWh. Standing charge: 53.37p per day Unit rate: 28.62p per kWh. Standing charge: 53.35p per day

How does the Ofgem price cap work?

The energy regulator’s price cap sets the maximum unit rates and standing charges suppliers can bill people on variable rate tariffs. Given most UK households now sit on these default tariffs, the cap has become the de facto gas and electricity bills rate.

Every three months, Ofgem calculates and implements a new price cap. As well as telling us how much unit rates and standing charges will cost, it also gives us a figure for the average annual cost of energy bills to a dual fuel household. This figure is based on what a typical two-to-three bedroom household could expect to pay over a year, assuming it uses 2,700 kilowatt hours (kWh) of electricity and 11,500 kWh of gas.

Most of this figure is governed by wholesale prices, with the cost of supplying electricity to homes and suppliers’ profit margins also forming smaller portions of it. While it is how we’ve come to mark rises and falls in the Ofgem rate, your energy bills could be higher or lower. It all depends on:

  • Where you live (unit rates vary from region to region)
  • Your energy usage
  • The type of property you live in
  • How many people live in your household
  • The quality of your insulation

What will happen to energy bills in 2024?

Note: Since we originally wrote this news story, the energy price cap predictions below have changed, and are now forecast to be lower than expected. See Will energy prices go down in 2024? for the latest. 

There is a lot of uncertainty about what energy bills will look like over the next year. Wholesale markets remain very jittery as global supplies continue to be tight in the wake of the Russia-Ukraine war.

It all means energy prices can still rocket at the drop of a hat. This was underlined when the Israel-Gaza conflict began in October – an event that saw wholesale prices soar and which has led to the higher price cap in January.

Energy consultancy Cornwall Insight has been fairly accurate in predicting the rate of the Ofgem cap throughout the energy crisis. It’s worth noting that these are very much forecasts, and that things could soon change. Here’s where Cornwall Insight expects prices to go in 2024:

Time period Price cap on new typical use figures
Old cap: 1 Jul 2023 to 30 September 2023 £1,976 a year
Current cap: 1 October 2023 to 31 December 2023 DOWN 7% - £1,834 a year
1 January 2024 to 31 March 2024 UP 5% - £1,928 a year
1 April 2024 to 30 June 2024 DOWN 6% - £1,816 a year - PREDICTION
1 July 2024 to 30 September 2024 DOWN 1% - £1,793 a year - PREDICTION
1 October 2024 to 31 December 2024 UP 2% - £1,834 a year - PREDICTION

Should you switch off the price cap to a fixed deal?

There are currently no fixes that better the October Ofgem energy price cap. But there are a few that sit below January’s cap. You can find full details in our energy comparison guide.

If you value cost certainty – ie, you want to know exactly how much your energy bills will be over the next 12 months – it’s worth considering a fix.

But if you’re looking to save money above all else, fixing right now is risky. Should energy prices fall, you could find yourself paying significantly more than if you’d stayed on a variable rate governed by Ofgem’s cap. Say you tried to get out of your fix, you’d be likely to face hefty exit fees that would wipe out any savings you’d make.

So, sadly there’s not a clear-cut yes or no answer when it comes to fixing. We simply don’t know for certain what will happen to prices for the foreseeable future.

What has Ofgem said about the new price cap?

The UK’s energy regulator said the rise meant UK households would be paying a similar amount to what they would have in August 2023.

Its CEO Jonathan Brearley said: “This is a difficult time for many people, and any increase in bills will be worrying. But this rise is a result of the wholesale cost of gas and electricity rising, which needs to be reflected in the price that we all pay.

“It is important that customers are supported and we have made clear to suppliers that we expect them to identify and offer help to those who are struggling with bills. We are also seeing the return of choice to the market, which is a positive sign and customers could benefit from shopping around with a range of tariffs now available.

“People should weigh up all the information, seek independent advice from trusted sources and consider what is most important for them whether that’s the lowest price or the security of a fixed deal.”

When is the next Ofgem price cap announcement?

We will find out what the Ofgem cap for 1 April until 31 June will be on 23 February 2024. The next price cap will be decided by what wholesale prices are like from 16 November 2023 to 15 February 2024. They may also depend on the energy regulator’s review of standing charges, which is set to conclude in January.

Here are when the assessment periods for each of the upcoming energy price caps will take place, and when the new caps will be announced:

Ofgem energy price cap dates Price cap announcement date Wholesale prices assessment period
1 October to 31 December 2023 (current cap) 25 August 2023 19 May to 17 August 2023
1 January to 31 March 2024 23 November 2023 18 August to 15 November 2023
1 April to 30 June 2024 23 February 2024 16 November 2023 to 15 February 2024
1 July to 30 September 2024 28 May 2024 16 February to 16 May 2024
1 October to 31 December 2024 27 August 2024 17 May to 16 August 2024

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