Energy bills could rise by £500 despite price cap being brought down

Analysts believe that energy bills could rise by as much as £500 a year on average regardless of an expected reduction in Ofgem's price cap.

On Monday, February 27, the energy regulator is expected to announce a drop in the cap on the amount energy suppliers are able to charge by roughly £1,000 from April 1, according to the latest forecasts from energy consultancy Cornwall Insight. The energy price cap is used by suppliers to let them know what maximum they can charge customers for each kilowatt hour (kWh) of energy they use.

The price cap is based on the amount an average household would pay for an annual bill, but households may spend more or less on their energy bills depending on how much they use.

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However, customers will pay about 20 per cent more on their bills – approximately £500 – as the government’s additional support in the form of the Energy Price Guarantee (EPG) only partially protects consumers from paying the full price cap.

The EPG limits customer charges to 34p per kWh for electricity and 10.3p per kWh for gas - equating to £2,500 a year for the average household. The government then picks up the difference between Ofgem's price cap and the EPG.

Meanwhile, energy bill costs will also be hit by the end of the £400 energy rebate scheme which provided a £400 discount split into six instalments. Currently, Ofgem's price cap is set at £4,279 a year for the average household, with the government paying around £1,779 a year to energy suppliers for the average household between September and March.

However, the predicted drop in Ofgem's price cap to £3,295 and the rise of the EPG to £3,000 means the government will only end up