E.ON is first big six firm to raise energy bills after Ofgem cap change
Millions of E.ON customers will be hit with a 10% hike in their energy bills from April, after the German company became the first of the big six suppliers to announce new tariffs in response to the government’s price cap rising.
The increase comes less than a week after regulator Ofgem lifted the cap on default tariffs to £1,254 a year for a typical household, because of higher wholesale costs.
Comparison sites urged the 1.8 million customers on the company’s default tariff to look for a better deal. The new tariff will be £286 more expensive than the cheapest deal on the market.
E.ON said it was making the increase in line with the decision by Ofgem to raise the cap and predicted other energy suppliers would make similar movements in pricing.
What is the energy price cap and how does it work?
How does the energy price cap work?
The cap, one of the biggest shakeups of the energy market since privatisation, came into effect on 1 January for 11m households on default tariffs, known as standard variable tariffs (SVTs). The government told the energy regulator Ofgem to set the cap because ministers argued people on SVTs were being ripped off by big energy firms capitalising on consumer loyalty. The limit is not an absolute one, but the maximum suppliers can charge per unit of energy and for a standing charge. There is a separate cap for 4m homes on prepayment meters, which are also going up.
If it is a cap, why have prices gone up?
It’s not a freeze, it’s a movable cap. That’s £1,137 today based on typical energy use, rising to £1,254 from 1 April. The reason is that the wholesale prices of electricity and gas, the biggest variable influencing prices, have increased.
Is there any way to avoid the increase?
Yes. Spend a few minutes on one of the many comparison sites, or sign up to an auto-switching service, and move to a cheaper tariff, either with your existing supplier or a rival one. Fixed tariffs, which are not covered by the cap, are almost always much cheaper than SVTs, though there are exceptions, so watch out. Several smaller suppliers also offer good customer service and variable tariffs that are well below the cap.
Could bills fall soon?
It looks likely, despite this week’s announcement. Ofgem said wholesale costs had begun to fall recently. If that pattern continues, it expects to lower the price cap in October. The energy analyst Cornwall Insight expect a fall of around £50 for a typical annual dual fuel bill. Bulb, one of the fastest-growing challenger firms, said wholesale costs had fallen 10% between last September and January, and if the trend continued it would drop prices in 2019. Small supplier Pure Planet cut a typical customer’s energy bill by £12 this week.
An E.ON spokesperson said: “Ofgem’s energy market price cap review set out that price cap levels would increase, driven by rising wholesale and other costs.”
The big six that control three-quarters of the UK energy market had priced on average £4 below the initial cap of £1,137, which started on 1 January.
The expectation is that the other five large players will follow E.ON’s lead. Companies have to give 30 days’ notice of price increases, meaning all are likely to announce rises in February.
Rik Smith, an energy expert at uSwitch.com, said: “Standard tariffs were a bad deal at the old cap level and they’ll be an even worse deal at the new level.”
The price cap is a flagship government policy that ministers say will ensure consumers pay fair prices and stop firms from exploiting loyal customers on poor value, default tariffs. Ofgem has said it expects the cap to fall in October.
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