April Price Cap rises to £1,849 – tariff changes planned, and billing pressure grows

Ofgem have today announced the energy Price Cap for April 2025 will be set at £1,849, reflecting a £111 (6.4%) increase from January’s headline value.

This marks the third increase in a row and the highest level since January 2024. The increase has been largely driven by higher forward wholesale costs, which rose by ~20% during the observation window.

Key points:

• April Price Cap set at £1,849, an increase of £111 (6.4%) from January, marking the third consecutive rise
• When adjusted for seasonal consumption, typical households could pay ~£,1850 from 1st April, £150 (9%) more than the 12 months to 31st March
• Affordability remains a key concern, with the cap projected to remain above £1,800 throughout 2025
• Government action on fuel poverty increasingly urgent, with energy debt reaching ~£4bn and at least 5m households affected
• Standing charge reform on the horizon, as Ofgem consults on mandating low/no-standing charge tariffs within the Price Cap framework
• Back billing under scrutiny, with pressure growing to reduce the back billing window from 12 to 6 months, posing a £200m-£300m risk for suppliers

Price Cap rises to £1,849 – The highest since January 2024

Despite hopes that geopolitical tensions might cool in 2025, persistent market uncertainty means that energy bills will likely remain around this level, with projections indicating a Price Cap above £1,800 for the rest of the year.

When adjusted for seasonal consumption, we estimate that a typical household could pay around £1,850 for their energy from 1st April, an increase of £150 (9%) on the 12 months to 31st March. This will have a noticeable impact on customers, many of whom will need their Direct Debit levels increasing to avoid falling behind on payments. Suppliers need to ensure that payment levels are reviewed regularly, and that their messaging is up to date and reflective of the reality for customers.

While wholesale costs remain a primary driver of energy prices, non-wholesale elements of the Price Cap could also see further changes in 2025. Ofgem is currently reviewing the distribution of fixed costs as part of multiple consultations - including a review of operating costs. These potential changes could see some costs redistributed away from the standing charge, altering how customers experience energy pricing.

Crucially, these adjustments could have varied impacts on different customer groups. Lower-consumption households might benefit from reduced standing charges, but this could mean higher unit rates for others to compensate. The final outcome will depend on Ofgem’s approach to cost reallocation and whether new pricing structures are introduced within the Price Cap framework.

Standing charge reform - Suppliers will be required to offer low or no standing charge tariffs

The April Price Cap sees average standing charges for a typical customer fall to £316 per year, making up ~17% of their annual bill.

Last week, Ofgem confirmed plans to require all energy suppliers to offer tariffs with low or zero-standing charges. This proposal is currently under consultation, with Ofgem considering how to implement these changes within the Price Cap framework ahead of next winter.

As part of this review, Ofgem is exploring a new Price Cap Variant, which would redistribute standing charge costs into unit rates. The key tariff models under consideration include:

• Single-rate tariff: A single unit rate, which includes all re-allocated standing charge costs
• Rising block tariff: Lower unit rates for initial usage, which increases beyond a set threshold(s)
• Falling block tariff: Higher initial unit rate, which decreases with higher consumption levels

While these options aim to give customers more control of their energy spend, and could lessen the burden of fixed charges on lower-energy users, concerns remain about potential consequences. Ofgem’s modelling suggests that if 1m customers opted into the single-rate or rising block tariffs, suppliers could face a £200m shortfall in recovering fixed costs (while a falling block structure could result in a significantly lower shortfall ~£3m).

Increased customer choice is welcome, but there are risks of increased confusion and complexity, particularly for vulnerable customers who are already the least engaged with their energy supply. And if these tariffs remain ‘opt-in’, how would we ensure vulnerable customers are on the most cost effective tariff for their circumstances?

Back billing – Ofgem and the government increase pressure, as 6-month reduction considered

Pressure is increasing on energy suppliers as the government calls for stricter back billing regulations. In a recent letter to Ofgem, Energy Secretary Ed Miliband urged a reduction in the back billing window for households with smart meters - from 12 to 6 months.

Ofgem have also warned suppliers of potential fines if they continue issuing new retrospective charges beyond the 12-month limit, aiming to better protect customers from unexpected, high-cost bills caused by historical billing inaccuracies. This is part of Ofgem’s wider efforts to tighten industry debt and billing standards, with a formal review underway to implement the proposed reduction to 6 months.

For suppliers, a reduced back-billing period could carry significant financial consequences. We estimate that shortening the window to 6 months could add £200-300m in annual costs, increasing pressure on already tight margins. Addressing metering accuracy, data processing, and customer communication will be critical to mitigating these risks.

Read our full article here, where we share best practices for improving billing accuracy ahead of potential regulatory changes.

Affordability – Suppliers alone cannot solve the crisis, government intervention is critical 

With the Price Cap expected to remain above £1,800 throughout 2025, and with policy costs only set to rise as the UK decarbonises the grid, the case for urgent government intervention on fuel poverty has never been stronger.

Household energy bills remain ~60% higher than pre-crisis levels, leaving 5m households in fuel poverty, while energy debt has soared to nearly £4bn. Despite this, government support has failed to keep pace with rising costs - schemes like the Warm Home Discount have increased by just £10 (7%), far below the rate of bill increases.

Ofgem’s drive to expand tariff options could help some households access lower costs, but suppliers alone cannot solve the affordability crisis. Without government-led structural support, the challenge of fuel poverty will only grow, threatening a just transition to Net Zero.

Ian Barker, Managing Partner, at BFY Group said:

"The latest Price Cap increase to £1,849 from April is unwelcome news for households, reaching the highest level since January 2024. With the Price Cap expected to remain above £1,800 throughout 2025, energy bills still ~60% higher than pre-crisis levels, and customer debt at a record £4bn - the affordability crisis remains a major concern.

“With 5 million households already in fuel poverty, urgent government action is critical. Suppliers alone cannot solve the affordability crisis - targeted, long-term intervention is needed to support vulnerable households and ensure a fair energy transition. While Ofgem’s proposed tariff reforms could offer customers more control over their energy costs, they may also introduce new complexities, potentially leaving some households worse off."

For more on April’s Price Cap increase, Ofgem’s changes to standing charges, or how to effectively support vulnerable customers, contact Matt Turner.