Millions of households around Britain will face a 54% increase in their annual energy bill when energy regulator Ofgem's new price cap comes into force on 1 April.
The regulator announced today that the energy price cap for customers on default tariffs paying by direct debit will go up by £693 a year, from £1,277 at present to £1,971, pushed higher by soaring global wholesale gas prices, which have quadrupled in the past six months.
Prepayment customers will see an increase of £708 from £1,309 to £2,017.
Around 22mln customers will be affected by the changes, Ofgem said in a statement.
The current price cap level has prevented energy suppliers from passing on the increased cost of wholesale gas to their customers, and as a result, 29 energy companies have folded or exited the market in the past year.
The customers of these collapsed companies have been passed on to the remaining suppliers.
"Since the price cap was last updated in August, the current level does not reflect the unprecedented record rise in gas prices which has since taken place," Ofgem said.
"Under the price cap mechanism, energy companies will be allowed to pass on these higher costs from April when the new level takes effect."
Jonathan Brearley, chief executive of Ofgem, said: “The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas."
He acknowledged that the price rise would be "extremely worrying" for households already struggling to make ends meet and said the regulator will ensure energy companies support their customers.
Chancellor of the Exchequer Rishi Sunak told MPs that the government would provide financial support for struggling households via council tax rebates and help with bills, amounting to around £350 for the majority of families.
That sum includes a £200 rebate on energy bills for households, which will be paid back over next five years at £40 per year starting in April 2023.
In addition, households in council tax bands A to D will get a £150 discount from April, the chancellor said.
Brearley said Ofgem is looking at ways to stabilise the energy market and over the longer term to diversify energy sources to protect customers from price shocks.
The regulator is proposing changes that will allow it to update the price cap more frequently than once every six months in exceptional circumstances to reflect rising wholesale costs.