Energy bills will rise again in January for millions of households who will be forced into paying more for their gas and electricity just as the coldest weather sets-in.

Hopes that bills might fall as we go into next year have been dashed with the average sized home now facing an increase of £94 a year, and here’s why:

What is the energy price cap?

The price cap was introduced at the start of 2019 by regulator Ofgem, with the aim of preventing households on traditionally more expensive standard – or default - tariffs from being over charged for the energy they were using.

The cap, which is overseen and set by Ofgem, controls the amount suppliers can charge customers for energy by placing a maximum limit on gas and electric charges.

It applies to customers both on a default standard variable energy tariff or those using pre-pay metres, which is estimated to be around three fifths of all households combined.

Charges dictated by the price cap don’t apply to homes who have signed up to a fixed-rate tariff, which means they’re already locked into paying an agreed amount of money for every unit of energy they use for the duration of that tariff’s contract.

Ofgem assesses the cap every three months, which can lead to bills coming up or down depending on conditions in the energy market and wholesale prices. The price cap announced this week will apply to energy used between January and March 2024 before prices are revisited again.

Why are bills rising again?

The wholesale price for gas and electricity has been rising in recent weeks – in part triggered by the Israel-Hamas war in the Middle East.

Prices first soared in February 2022 with Russia’s invasion of Ukraine and have struggled to fall significantly since.

Rising energy bills have also been made worse by the increase in standing charges, which is a flat fee charged daily on top of how much energy you use – often like a line rental charge to run a home phone – that covers connecting your home to a supplier.

And with few fixed rate deals available, to enable customers to ‘lock-in’ to set charges for a specific amount of time, lots of homes are at the mercy of their supplier with most expected to increase charges from January when Ofgem gives them the green light to do so.

How much will I pay from January?

Ofgem’s current price cap means the typical household, using an average amount of energy, is paying £1,834 for their supply.

This is roughly £151 less than the previous cap (for July to September) which was set in the summer and around £500 less than we were paying at the peak of last winter.

From January 1 a typical home, paying by direct debit, will be charged £94 more over the course of the year – with an increase in the price cap taking an average annual bill to £1,928 per year.

But this is merely an example – as no home is necessarily ‘typical’ and how much your property uses will depend on who lives there, the type of home it is and how energy efficient it can be.

However between October 2022 and March this year, more than 29 million domestic customers were given an extra £400 towards paying their energy bills and so while the cap has fallen since last Christmas, a lack of help this winter has in reality, left people paying very much the same.

What help is being made available?

There is expected to be no resurrection of the Energy Bill Support Scheme which gave the majority of homes last winter extra cash to help pay their gas and electricity bills.

Instead the government is understood to favour more targeted help that gives additional money and support to those on the lowest incomes rather than offering help to all households.

Those on certain means tested benefits and tax credits are this month receiving an extra £300 in cost of living cash help – money that won’t need to be paid back – with a further £300 expected to follow in the spring.

There is also more help on the horizon for the disabled, if claiming certain disability-related benefits, and for pensioners who will get extra cash this winter if they already claim a winter fuel payment.

In announcing its planned increase to the price cap, Ofgem says it wants to see the most vulnerable customers supported.

Jonathan Brearley, CEO of Ofgem, said: “This is a difficult time for many people, and any increase in bills will be worrying. But this rise – around the levels we saw in August – is a result of the wholesale cost of gas and electricity rising, which needs to be reflected in the price that we all pay.

“It is important that customers are supported and we have made clear to suppliers that we expect them to identify and offer help to those who are struggling with bills.

“We are also seeing the return of choice to the market, which is a positive sign and customers could benefit from shopping around with a range of tariffs now available offering the security of a fixed rate or a more flexible deal that tracks below the price cap.”