- Ofgem’s dual-fuel, direct-debit price cap rises 0.2% to £1,758/year for 1 Jan–31 Mar 2026 (about £3 more per year).
- Ofgem has approved major grid and gas network upgrades (£28bn now, up to £90bn by 2031), adding about £108/year to bills by 2031 but offset by roughly £80/year in savings.
- From April 2026, the government plans to shift some green levies from bills to general taxation, cutting typical bills by around £150/year.
- Overall, bills edge up in early 2026 but are expected to fall by about £120/year from April, with longer-term risks tied to delivery, support for vulnerable households, and wholesale price shocks.
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These changes reflect a three-pronged strategy: maintaining energy system resilience, reducing regressive costs on households, and managing inflationary pressures while supporting clean energy.
Price Cap Adjustments (Jan-Mar 2026): Ofgem’s review for the period 1 January to 31 March 2026 introduces a small increase in the default tariff price cap by about 0.2%, translating to ~£3/year for a typical dual-fuel, direct-debit household; the cap will stand at £1,758/year. Electricity unit costs will be ~27.69 p/kWh, gas ~5.93 p/kWh, with standing charges of ~54.75p/day for electricity and 35.09p/day for gas.
Infrastructure Investment & Long-Term Costs: Ofgem has authorised a major investment program of £28 billion initially, scaling to £90 billion by 2031, targeting transmission, distribution and gas network upgrades. While this investment leads to higher network charges (projected ~£108/year by 2031), it also delivers savings reported to be ~£80/year per household by reducing reliance on imported gas and mitigating network constraints. Net effect estimated as ~£30/year by 2031.
Budget 2025 Reforms & Green Levies off Bills: In the November 2025 Budget, the government announced that certain costs supporting energy efficiency and renewables (ECO, Renewables Obligation) will be shifted away from direct billing to general taxation starting April 2026. This shift, plus VAT effects, is expected to cut typical dual-fuel bills by ~£150/year.
Net Impact & Strategic Implications: For early 2026, the net effect is a modest bill increase (~£3/year) before reforms. From April, many households likely see lower bills due to levy removals, but households will still absorb infrastructure costs over time. Key risks include: wholesale price shocks, reduced funding or performance of efficiency programs (e.g. insulation), disproportionate effects on vulnerable households, equity concerns over funding via taxation vs bills.
Open Questions:
- How quickly will the removal of green levies translate into savings for fixed-tariff vs default-tariff households?
- What are the fiscal trade-offs of shifting levy funding to general taxation, particularly for low-income taxpayers?
- Will investment projects be delivered on time, on budget, and with expected efficiency savings?
- How resilient are households to volatility in wholesale gas prices, even with long-term infrastructure investments?
Supporting Notes
- Ofgem sets price cap for standard variable tariffs (dual-fuel, direct debit) at £1,758/year from 1 Jan to 31 Mar 2026, a nominal 0.2% rise over the prior quarter.
- Electricity unit rate: ~27.69 p/kWh; gas: ~5.93 p/kWh. Standing charges for electricity ~54.75p/day; gas ~35.09p/day.
- £28 billion investment approved for upgrading energy networks, rising to £90 billion by 2031; estimated bill charge of £108/year more by 2031, partially offset by savings of ~£80/year.
- Government reforms: scrapping the Energy Company Obligation; moving 75% of Renewables Obligation off bills; together expected to save typical dual-fuel household ~£150/year from April 2026.
- Net combination of Ofgem’s grid investment and government levy removals suggests average bills may fall by around £120/year from April, after the small January-March increase.
- Year-on-year, the new cap is approximately £37 lower when adjusted for inflation than the same period in 2025.