The energy price cap, set by UK energy regulator Ofgem, has risen by 0.2%, meaning the average UK household would have to pay £1,758 for energy every year.
The price cap is set every three months, and the increase is equivalent to a monthly bill increase of 28 pence per month, from January to March, before the new price cap is set for the April to July period.
According to Ofgem, compared to the level between January and March 2025, the upcoming price cap is 1% or £20 lower. And year on year, adjusted for inflation, the new limit is 2% or £37 lower than the same period in 2025.
This increase was unexpected: energy consultancy Cornwall Insight this week predict a reduction in the price ceiling of 1% or £22.
The Default Tariff Cap has been set by the UK energy regulator Ofgem as the maximum unit rate and standing charge that customers can be charged for their energy consumption. The exact monetary values will vary by household, based on their electricity and gas mix, but the figures Ofgem provides alongside the percentage changes are illustrative of its view of the average household.
The energy price ceiling consists of various costs, including the wholesale costs of gas and electricity, costs to supply energy to the network and VAT. These costs are split within the energy price ceiling between the unit rate and the standing charge.
Wholesale costs are falling, hence Cornwall’s prediction that the cap would fall. However, both fixed and unit rates for electricity have increased (by 2% and 5.1% respectively), and while the unit rate for gas has fallen (by 5.7%), fixed rates have also increased there (by 3.1%).
The increase in fixed charges is mainly due to policy costs. Policy costs are the extra costs that energy suppliers charge to cover their own costs, including supplying energy to the electricity grid, but also subsidizing sustainable energy programs and the Warm Homes Discount (although Ofgem has taken steps to mitigate the impact of the latter). The The government also contributes to the financing for many of these schemes.
According to financial journalist and ‘money-saving expert’ Martin Lewis, “electricity is seen as more universal”, which is why policy costs tend to increase costs associated with electricity, not gas.
This means that households that consume more electricity than gas will see a larger increase in their energy bills in the coming price cap period.
As Lewis put it in a post on social media site
The energy sector justifies high bills for households
According to Craig Lowrey, principal advisor at Cornwall Insight, the higher costs represent “an investment in long-term stability and affordability”, which he says is a message that “must be paramount”, while conceding that the issue of immediate affordability for households and businesses is “critical”.
Jess Ralston, energy analyst at the Energy and Climate Intelligence Unit (ECIU), said that because the UK electricity system has seen historically low levels of investment, “we are now playing catch-up”, but “an improved electricity grid is crucial” for the energy transition.
Costs associated with infrastructure upgrades are another factor considered in the price cap.
Tim Jarvis, director general of markets at Ofgem, acknowledged that “although energy prices have fallen in real terms over the past two years, we know people may not feel this in their pockets.” However, he suggested that while “the price cap helps protect households from paying too much for energy,” it is “just a safety net and there are practical ways customers can pay less for their energy.”
One way in which competition is maintained in the energy supply market is by offering competitive prices to suppliers to encourage customer ‘switching’, which involves switching suppliers based on the promise of lower energy bills.
Although there is currently one ban on offering low rates only to new customers (acquisition-only rates), energy companies can acquire new customers through competitive rates.
However, as highlighted in a recent report from trade union Unite, £500 from every energy bill goes into the energy company’s profits.
According to Unite general secretary Sharon Graham: “If the government is serious about cutting bills, it must tackle corporate profiteering. We must bring back public ownership of our energy system, starting with the electricity grid.”
Lewis called it “policy perversion” to push policy costs onto consumer bills.
Ignoring the increasingly vocal minority opposed to the energy transition Overall, the inclusion of policy costs in consumers’ energy bills undermines the government’s argument that the energy transition will deliver cheaper energy.
Renewable energy generation has consistently been shown to be cheaper than gas, regardless of its benefits for decarbonizing the economy. used by shadow energy secretary Claire Coutinho to justify the Conservative Party’s pledge to scrap the Climate Change Act and slow down Britain’s decarbonisation.
Per Unite, energy companies’ profits (£30bn) are a much bigger factor in household bills than green levies, which amount to £9.9bn.
Unite is calling for the renationalisation of the UK energy system, starting initially with the electricity grid. Simon Coop, national official of the Union for Energy and Utilities, recently spoke about this Solar energy portalavailable to read here.
