The energy regulator Ofgem may change the way it caps bills for millions of households across the UK as a major spike in global gas prices continues to put more pressure on suppliers.
Ofgem has given no details of what adjustments it might make to how the cap is calculated, but will set out its thinking as it launches a consultation this month.
Energy bosses have been calling for a rethink of the price cap mode l amid the gas price crisis. At the moment the regulator caps the energy bills of more than 14 million households at £1,277 per year on average
But a huge increase in the price of gas has been so rapid that suppliers are now having to pay more for energy than the cap forces them to sell it for.
Ofgem said in a letter to suppliers on Friday: "The unprecedented rise in energy prices this year has changed the perception of risk and uncertainty in this market."
It continued: "In order to protect the interests of consumers, we must ensure that the regulatory frameworks, including the price cap, fully reflect the costs, risks and uncertainties facing the supply companies we regulate."
The consultation on potential changes will end in February, and they could be implemented at the beginning of April - when the price cap is set to change.
Even before potential changes, experts at analysts Cornwall Insight predict that energy bills will rocket to £1,660 per year for price cap customers.
The regulator also said it plans to make changes to the supplier of last resort scheme, which steps in if a supplier fails.
When a supplier goes bust, which has happened more than a dozen times in the last two months, Ofgem appoints a new company to take over its customers.
This gives customers certainty that they can continue to use their gas and electricity as usual.
However, it is often an expensive process for the chosen new supplier. In order to incentivise companies to volunteer, Ofgem allows them to claim back some of these expenses from the rest of the industry - a cost that is ultimately passed on to all bill-payers across the UK.
The watchdog said it plans to expedite the process so suppliers do not have to wait for as long to claim expenses back.
In the letter, Ofgem also said it intends to raise the bar for what it expects from suppliers' risk management processes and potentially change conditions in their licences.
And it plans to change the frequency at which suppliers have to pay a green charge known as the renewables obligation.
At the moment it is paid once a year, in the autumn. But the big charge has often been enough to push struggling suppliers into failure while they still owe large sums to the regulator.
ScottishPower chief executive Keith Anderson said: "The current crisis has exposed real weaknesses in how the energy retail industry is regulated. Irresponsible and reckless behaviours have gone unpunished and now customers are being told to bear the costs.
"And as I said last week, things are becoming desperate even for some well-run companies in our sector. Many more will go bust in the next few weeks.
"I am pleased that Ofgem has begun to listen to the industry and to respond. As a set of short-term fixes, Ofgem's proposals make sense.
"But we also need to think about the bigger picture. We need urgently to address the structural failures in the retail market - reforming the price cap so that it can respond more quickly to price shocks in the wholesale energy markets as well as focusing it on the most vulnerable customers, who will need our help the most."
Prior to the energy price rise at the start of October, switching supplier was the most common way for bill payers to save money, however, consumer experts, including Martin Lewis, strongly advise doing that during the crisis and the mantra “do nothing” has become the norm.
But there are some changes you could make now which Ocean Finance says will save you money in as little as two years.
Whilst there is an initial cost, installing green appliances is worth it. In two years, not only will you have saved the initial cost of £221.36, but you will have saved an additional £426.50 on your energy bills, too.
Switch to a smart meter and save an average of £73.86 in two years
Getting a smart meter installed could save you £36.93 per year on gas and electricity, according to the UK Government’s Smart Meter Roll-Out Cost-Benefit Analysis.
The report explains a smart meter could reduce your gas bills by 2.7%, which is the equivalent of £17.25 annually, plus a 3% reduction in electricity usage, which equals a saving of £19.68 each year - a total of £36.98 when added together. That’s a total of £73.86 after two years.
Plus, energy suppliers should install your smart meter for free.
Switch to smart plugs and save an average of £100.03 in two years
The Energy Savings Trust found that UK households waste £80 a year on average by leaving appliances on standby.
If you forget to properly turn off appliances, you can simply put smart plugs into your wall sockets and then control the power using your mobile phone.
Smart plugs cost around £59.97 for nine plugs, which should last for a decade if cared for properly.
After two years, that’s a saving of £100.03.
Switch to smart bulbs and save an average of £252.61 in two years
Research shows that incandescent bulbs cost around £12.40 to buy and power annually, compared to just £2.05 for an LED smart bulb.
Saving £10.35 per bulb, a house with 20 bulbs could save £207 every year by opting for energy-efficient lighting.
Even with the upfront costs of approximately £161.39 to buy 20 smart bulbs, after two years you could save up to £252.61 by using smart lighting.
Adele Kitchen, Content Producer at Ocean Finance said: “Our research has revealed a certain switch you can make that’ll have a positive impact on your energy bills - switching three appliances in your home to smart versions. Those who have installed a smart meter and updated their bulbs and plugs to smart versions have saved an average of £426.50 over two years. This is extra useful given that energy prices are continuing to rise.
“In addition to the financial savings, switching to a smart home can help you become more energy efficient. For example, by installing a smart meter, you’ll not only get more accurate bills, but you’ll also be able to see your usage in real time. This will allow you to easily identify how you’re using energy and spot any money-saving changes that could be made.”
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