As we outlined a few weeks ago, the upcoming domestic price cap effective 1st April 2025 has now finished calculating and Ofgem will shortly be announcing the final values.
Our prediction is that the current value (effective 1st January 2025) of £1,738 will increase on 1st April 2025 to £1,834, representing an increase of 5.5%.
This value is what we refer to as the ‘headline rate’ and is simply a financial value placed on a ‘typical’ customer using ‘average’ usage for both gas and electricity over a year paying by direct debit. There are variances to the amount each household will actually pay depending on the region and how they pay for their energy and so the focus for each household should be on the specific standing charge and unit rate for their circumstances (which will be published by Ofgem by 25th February).
However – understanding the drivers for the overall increase of some 5.5% are outlined here.
Firstly, many households will be disappointed at seeing yet another increase to the cost of energy to their homes – especially as we exit the winter period and head into the summer. However the way in which wholesale markets work, and the way in which the price cap is calculated, means the volatility of those wholesale markets (in particular gas) has driven those markets to incredible levels once again over the last few months whilst the price cap is being calculated.
The end of Russian gas toward Europe through Ukraine ended on 31st December 2024 – this event, despite being fully expected, saw markets rise. It did so as, at the same time, European gas stocks were taking a hit due to being called upon due to a cold spell. That then puts pressure on how much will be left for the remaining winter but also how much will be needed to replenish them over the summer in readiness for next winter. There is European legislation that dictates that storage must be 90% full by 1st November each year.
In recent weeks fear has been pushed higher, to long term highs. However in the last few days some relief has found its way into the market – but not enough to impact the price cap calculation for April. Talks of finding a peaceful solution to the Ukraine conflict and European countries seeking to relax those gas filling rules are taking primary focus to potentially alleviate some of those fears. Whilst it is early days, this shows that the energy market is truly global and geopolitical influence is considerable.
Looking back at the upcoming price cap specifically, we forecast a value of £1,834 as the headline rate – split as £930 for gas and £904 for electricity. That is a 10% and 1% rise against the current January values respectively. Interestingly this is the first time (aside from when the government support schemes are present during the ‘energy crisis’) that gas has been higher than electricity in the history of the price cap.
Once again, it is important that households look at their specific circumstances to value the specific impact of this movement to them. This means looking at your specific usage for each fuel and the regional rates that will apply for the payment method you use. The value of £1,834 is not a financial cap to what a supplier can charge you. The cap applies to the standing charge and unit rate and will be multiplied by your specific metered usage.
Should you have any questions about how the cap impacts you, please seek advice.