As the price cap increases by 2%, millions of Britons will see their energy bills increase.

After Ofgem raised its price cap to 2% in October, millions of British households who are already struggling with tight budgets will be faced with higher energy bills. This is despite the fact that the government is trying to reduce energy costs.

The regulator, which is a non-ministerial department of the government, has raised prices after the inflation rate reached its highest level in 18 months, in July, and as the government faces increasing pressure regarding the affordability of the net zero plan.

The cap has been increased by 35 pounds for the period July-September.

Ofgem stated that the increase was due to an increased cost of network and policies.

Although domestic energy prices are down since their peak of 2023, they still remain about 50% higher than the summer of 2021. This was before Russia invaded Ukraine and sent gas prices skyrocketing, causing an energy crisis across Europe.

In June, the government announced that an additional 2.7 million households would be eligible for its Warm Home Discount this winter. The discount, which was introduced in 2011, will now help 6 million households who have energy bills of 150 pounds.

Ofgem stated that the extension of the warm home discount added an average of 1.42 pounds per month to all bills.

Consumer groups have said that energy costs are still unmanageable by many, and they want more help for those who are struggling.

The government stated that the only way to lower long-term bills is to reduce Britain's dependence on fossil fuels.

Michael Shanks, Energy Minister of Britain, said in a press release that the government's mission is to take us off the roller coaster of fossil fuels prices and onto a clean power source we can control.

Ofgem determines the quarterly price cap using a formula which reflects wholesale energy costs, network costs of suppliers and environmental and social charges.

The wholesale energy price fell by around 2% during the last assessment period.

Analysts at Cornwall Insight say that while the price cap may drop in January due to a drop in wholesale prices, the bills could be higher because of additional policy costs, such as an extra fee charged to bills for the Sizewell C Nuclear Plant.

"These policy costs are part a larger shift in the way we fund the energy transformation... but some funding will need to come ultimately from the billpayers," Craig Lowrey said, principal consultant at Cornwall Insight.

(source: Reuters)