Martin Lewis explains why energy price cap is rising this week - despite wholesale fuel costs dropping

Millions of households across the UK face paying more for their energy from this week as price cap changes come into effect.

From Tuesday, October 1, households in England, Scotland and Wales will see the average bill rise by around £12 a month or £149 a year from the current £1,568 for a typical dual-fuel household. Ofgem's energy price cap sets a maximum price that energy suppliers can charge consumers for each kilowatt hour (kWh) of energy they use.

Ofgem changes the price cap every three months based on several factors, the most important of which is the price of energy on wholesale markets.

READ MORE: Millions of households urged to take action within 24 hours to avoid costly energy bills

However, with the price of wholesale market prices falling recently many have been left wondering why the price cap is instead rising.

Writing on X, money-saving expert Martin Lewis explained that the forthcoming price cap is based on the price wholesale fuel rates from several months ago.

He wrote: "Our energy market is perverse. Tomorrow, 1 October, the energy price cap, which dictates the rate 8 in 10 England, Wales, Scotland homes pay, rises by 10% - meaning bills do to.

"Yet wholesale rates, those energy firms buy at, have dropped in recent weeks (tho up slightly in last few days) evidenced by the fact the switchable deals being offered have got cheaper.

"The reason for the disjoin is that the price cap mechanism is time-lagged. Each cap is fixed for three months, the new 1 October to 31 December cap is based on mid-May to mid-August's wholesale rates, and they peaked in August."

Martin added: "You'll need to wait until January for the recent falls to be factored in, which is why the cap is predicted to drop, slightly then (a few weeks ago it was though it'd rise).

"It's only slightly because its an averaging over time while current switchable deals can take advantage of short-term dips. So on a practical note if you act (do a comparison - MSE energy club is whole of market) you can take advantage of lower rates, if not you'll pay more due to the time lag system and have to hope wholesale rates stay low the next few weeks in order to see a drop in January price cap."

Meanwhile, householders have been reminded to submit their latest meter readings before Tuesday to make sure they are not overcharged for their energy usage.

Uswitch energy spokesman Ben Gallizzi said: “With energy prices rising next week, it’s vital that households submit a meter reading, with a £19 difference between the cost of a week’s energy at September’s prices compared with October.

“Customers who don’t have a smart meter should aim to submit their readings before or on Tuesday, October 1, so their supplier has an updated – and accurate – view of their account.

“If you delay submitting your readings, some of your September energy usage could end up being estimated and therefore charged under the higher October rates. Try making this task a monthly habit for billing accuracy.

“Households are also advised to see whether now is the time to change their energy tariff, to beat the October price hikes.

“There are a number of fixed tariffs worth considering right now. By opting for a fixed deal, you’re locking in those rates for the duration – usually 12 months – which means households could have price certainty and avoid the ups and downs of the price cap.”

The price cap does not limit total bills because householders still pay for the amount of energy they consume, but sets a maximum price that energy suppliers can charge consumers for each kilowatt hour (kWh) of energy they use.