Fixed rate tariffs save up to £180 per year on your energy bills*
Ofgem have announced that the price cap is due to increase on 1 January 2025 by a further £21 from £1,717 to £1,738. This represents a 1.2% increase for the average medium usage household across the UK.
Video: Price Cap Predictions for 2025
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Unit Rates and Standing Charges
The table below shows the standing charges and unit rates for gas and electricity in both the current price cap (1 October 2024 to 31 December 2024) and the upcoming price cap (1 January 2025 to 31 March 2025).
Frustratingly, as we approach the coldest 3 months of the year, Ofgem have increased unit rates and reduced standing charges. Whether you’re a low, medium or high usage household, this will likely be a negative to you as saving 0.03p per day on your standing charges will not compensate for the additional 0.36p extra you’ll pay per kWh on electricity nor the additional 0.1p per kWh you’ll pay on gas over the 3 months of January to March 2025.
Across a year, the standing charges effectively reduce by less than 11p – that’s PER YEAR, not per day, week or month. However, the changes in unit rates for gas and electricity equate to the £21 increase we’re seeing. This change isn’t the same as seeing a £1.75 per month increase in your bills as Ofgem state, it’s actually more likely you’ll see a £2.00-£2.50 increase in your bills per month over January to March 2025, as these are the highest usage months of the year.
Expectations for 2025 gas and electricity prices
This is just the first increase we’re expecting to see in our energy bills, things are likely to get worse.
According to British Gas (who were almost 100% accurate with their prediction of this price cap announcement) we should expect to see another ~£50 increase in our energy bills in April 2025, followed by a small decrease in July 2025. Overall though, the all 12 months of the next calendar year look set to be more expensive than the prices we’ve been enjoying in 2024.
We’re all likely to be paying around £75 more next year for our energy bills if we remain on standard variable or default tariffs. If you’re able to, please move to a fixed rate tariff soon, it’ll be much cheaper for you over the next 12 months.
Causes of the price cap increase and expected supplier profits
Looking at the below table, it appears that almost all of the increase is coming from wholesale costs rising by £19 per year. There is also an additional £1 per year in VAT, and the other £1 will be made of pennies being added to each of the other elements.
An interesting note is to look at the profit figure (labelled EBIT in the table above) attributed to each supplier in this cap. Whilst it hasn’t change from the current price cap to the January 2025 price cap, remaining at £43 per household, this is over twice as high as the profit figure was in the price cap prior to the energy crisis. Prior to the beginning of the crisis, profits were at £19 per household, representing an increase of 126% in profit margins for energy suppliers since April 2021.
At £43 per household, with over 31 million homes in the UK, the retail domestic energy supply industry is looking at around £1.3bn in profits next year. As the expectation is that the cap will be higher from April 2025 to September 2025 at least, this profit figure will actually go up with it.
The primary cause of this increase in profit was the Ofgem decision to give suppliers more profit back in 2023. They changed the formula for calculating the profit element of the price cap, from being 1.9% of the other costs in the cap to having a fixed element of roughly £20 plus a variable element of 1% of the other costs of the price cap. The argument at the time was that consumers would be better off if the price cap ever went above £4,000 per year again, which it did once in all of history.
Under the old formula, the profit level for this cap would be around £32, saving us £11 per year. Not only that, but the VAT would reduce by about £1.50 and the headroom allowance would reduce by around £0.50 as well, saving consumers a total of £13 per year, or over £400million in spending on our energy bills.
This is all irrelevant of course, because the change did go through and we are seeing the higher profit levels for suppliers whether we like it or not, but it is just one example of how Ofgem are part of the cause of the energy crisis. This is one of over a dozen different changes Ofgem have implemented in the last 3 years to give more money to energy suppliers. The primary excuse for which is that a more profitable energy industry will result in more external investment from other countries, improving the quality of the services provided and accelerating our approach to net-zero. The evidence of whether this is successful and whether this actually benefits consumers financially will take years to materialise.
Cheapest Fixed Rate energy tariffs in the market
With the cap starting a steady increase that is set to raise your energy bills significantly in 2025, your best bet is to move to a fixed rate tariff as soon as possible. If you’re already on one, congratulations, that’s great news, you can ignore the price cap updates as they do not impact you. If you’re on a Standard Variable or Default tariff, then you should be looking at moving to a fixed rate tariff as soon as possible. The link below takes you to the Uswitch price comparison page for energy, please use it see how much money you can save today. The savings figures will be based on today’s price cap figures, you’ll actually save a lot more than that as the cap will be going up in January and is likely to rise in April-June and still be higher than today’s cap in July-September.
Medium usage households
Currently, the cheapest tariff in the market for medium usage households is the E.ON Next Fixed 18m v7 tariff, that saves a medium usage household over £130 per year on the current cap. That is equivalent to £148 saving on the next price cap figure and over £200 saving compared to the predicted April price cap figure!
