Ofgem have today announced a £111 (6.4%) increase in the energy Price Cap, rising to £1,849 from April.
Key points from our analysis at BFY Group:
- Price Cap rising to £1,849 from April: Ofgem's Price Cap will rise by £111 (6.4%) to £1,849 in April 2025. This marks the third consecutive rise and the highest level since January 2024, driven by ~20% higher forward wholesale costs during the observation window.
- Bills projected to remain above £1,800 throughout 2025: When adjusted for seasonal consumption, typical households could pay ~£1,850 from 1st April, £150 (9%) more than the 12 months to 31st March. The cap is projected to remain above £1,800 throughout 2025.
- Affordability remains a major concern: With energy debt reaching ~£4bn and at least 5m households affected by fuel poverty, government action is increasingly urgent.
- Standing charge reform on the horizon: Ofgem has confirmed plans to require all energy suppliers to offer tariffs with low or zero-standing charges, with a new Price Cap Variant being explored.
- Back billing under scrutiny: Pressure is 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
"The latest Price Cap increase to £1,849 from April is unwelcome news for households, reaching the highest level since January 2024," said Ian Barker - Managing Partner at BFY Group.
"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."
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.
Ofgem is exploring a new Price Cap Variant that could redistribute standing charges into unit rates. The proposed tariff models include:
- Single-rate: A single unit rate that covers all standing charge costs.
- Rising block: Lower unit rates for initial usage, increasing beyond a set threshold.
- Falling block: Higher initial rates that decrease with higher consumption.
While these options aim to give customers more control and reduce fixed charges for lower-energy users, concerns remain. Ofgem’s modelling suggests that a shift to single-rate or rising block tariffs could create a £200m shortfall in fixed cost recovery. If these tariffs are 'opt-in,' there are risks of increased confusion, particularly for vulnerable customers, who may struggle to select the most cost-effective option.
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. Energy Secretary Ed Miliband recently urged a reduction in the back billing window for households with smart meters - from 12 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.
Affordability – Suppliers alone cannot solve the crisis, government intervention is critical
With the Price Cap expected to stay above £1,800 throughout 2025 and policy costs rising as the UK decarbonises, the need for urgent government intervention on fuel poverty is clearer than ever.
Energy bills remain ~60% higher than pre-crisis levels, leaving 5 million households in fuel poverty, while debt has nearly reached £4bn. Government support, such as the Warm Home Discount, has not kept up, with increases of just £10 (7%) which is far below the rate of bill hikes.
While Ofgem’s tariff reforms may help some households, suppliers alone cannot address the affordability crisis. Without targeted government action, fuel poverty will continue to rise, jeopardising a fair 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."
About BFY Group
BFY Group is one of the UK’s fastest-growing management consultancies, trusted by leading organisations in the Energy, Utilities, and Private Equity sectors. The firm partners closely with clients, providing practical solutions to their most complex challenges, identifying opportunities, and delivering lasting results.
Founded in 2004, BFY Group remains an independent, privately owned consultancy based in Nottingham, serving clients across the UK.
Specialising in Transformation, Strategy and Commercial Excellence, Operational Turnaround and Recovery, and ESG and Carbon Reduction, BFY Group supports a wide range of organisations, including major energy retailers - covering 75% of the UK market- as well as emerging firms. The consultancy also works across the broader energy value chain and utilities sector, encompassing water, energy services, and infrastructure.
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