ENERGY bills are set to shoot up to £3,549 on average per year after the new price cap was revealed.

The energy regulator Ofgem confirmed the new price cap, which comes into effect on October 1.

But what is the energy price cap and how does it work?

The current energy price cap means the average annual household bill is £1,971, but from October that average go up a further 80%.

It will affect the roughly 22million people on default or standard tariffs offered by the country's energy providers, according to Ofgem estimations.

An increasing number of energy users are on the price cap as there are limited fixed deals left out there on the market.

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Before, locking into a fixed energy tariff was the cheaper option, but that has changed since prices started rising so much.

What is the energy price cap? 

The energy price cap sets a limit on the unit price and standing charge that companies can bill their customers.

So the £3,549 figure is an average bill a household might pay. You could pay more or less than this.

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The cap is based on wholesale prices over a six month period.

The price cap was originally set up in January 2019 by Ofgem, in a bid to limit how much providers can charge on default energy bills to spare Brits from being unfairly charged.

It used to be updated every six months, but this has now changed to every three.

That means after the price cap hike in October, it will change again in January.

Previously, families were able to save money by shopping around for energy deals, but then a number of companies went out of business.

This left people with barely any options on tariffs.

How much is the energy price cap?

The cap on standard variable and default tariffs is set by Ofgem.

Currently, it is priced at £1,971 per year typically for an average household paying via direct debit.

But from October 1, it will rise to £3,549 per year for an average household.

Because this is for an average household, you may pay less or more than this figure though.

Right now, the current rates for duel fuel tariffs are:

• 7p per killowatt hour (p/kWh) for gas
• 28p/kWh for electricity
• A standing charge of 27p per day for gas
• A standing charge of 45p per day for electricity

From October the first the new rates will be:

• 15p per kilowatt hour (p/kWh) for gas
• 52p/kWh for electricity
• A standing charge of 28p per day for gas
• A standing charge of 46p per day for electricity

How does the energy price cap work?

The energy price cap works by setting a limit on the maximum amount suppliers can charge for each unit of gas and electricity.

Ofgem sets a maximum daily standing charge which is what households have to pay in order to have their home connected to the National Grid.

The energy price cap only applies to providers' standard and default tariffs.

This means if you're on a fixed-term energy deal, the cap doesn't apply to you.

Is it cheaper to switch or stick with the default tariff?

There are usually no prizes for loyalty when it comes to energy bills.

In the past, households could save hundreds of pounds by switching supplier every year.

This is harder to achieve in today's market, by Martin Lewis has previously said it might be worth some customers fixing a deal.

That's because energy bills are forecast to go up even more in 2023, so it might be worth fixing now to lock in a rate.

The reason bills have soared so much in recent months is in part due to the war in Ukraine.

Russia is a massive exporter of natural gas and the country has slashed supplies to Europe, driving prices up.

The nation also exports crude oil, which is why petrol prices have been high in recent months.

How to save on your energy bills

SWITCHING energy providers can sound like a hassle – but fortunately it’s pretty straight forward to change supplier – and save lots of cash.

Shop around – If you're on an SVT deal you are likely throwing away up to £250 a year. Use a comparion site such as MoneySuperMarket.com, uSwitch or EnergyHelpline.com to see what deals are available to you.

The cheapest deals are usually found online and are fixed deals – meaning you'll pay a fixed amount usually for 12 months.

Switch – When you've found one, all you have to do is contact the new supplier.

It helps to have the following information – which you can find on your bill –  to hand to give the new supplier.

• Your postcode
• Name of your existing supplier
• Name of your existing deal and how much you pay
• An up-to-date meter reading

It will then notify your current supplier and begin the switch.

It should take no longer than three weeks to complete the switch and your supply won't be interrupted in that time.

What help can I get with my energy bills?

Energy suppliers may offer you a grant if you're in debt to your provider and struggling to pay your bill.

For example, British Gas has earmarked £6billion to help customers.

Bulb has re-opened its hardship fund and some households could get up to £140.

Some customers may be eligible for extra help such as payment breaks and emergency credit to top up prepayments. 

Millions will get a £400 energy rebate from the government from October.

And millions of households should have already received a £150 council tax rebate to help cover costs as well.

Around three million have just weeks left to claim theirs.

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Households might be eligible for the Winter Fuel Payment, which gives people over 65 up to £300 to help keep their home warm during the colder months.

Here is everything you need to know about the gas price crisis and the latest on Russia/Ukraine crisis.

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