TENS of thousands of older Scots will be plunged into fuel poverty over the decision by the energy regulator to review prices four times a year.

Those are the fears of charity Age Scotland after Ofgem confirmed that the energy price cap will be updated quarterly, rather than every six months, while warning that customers face a “very challenging winter ahead”.

The regulator said the change would go “some way to provide the stability needed in the energy market”, adding: “It is not in anyone’s interests for more suppliers to fail and exit the market.”

It said Russia’s actions in Ukraine had led to volatility in the global energy market experienced last winter lasting “much longer, with much higher prices for both gas and electricity than ever before”.

Energy prices surged last year as the global economy recovered from Covid-19 lockdowns. The invasion of Ukraine in late February then prompted a further jump in prices, as western allies sought to economically isolate Russia, a major gas and oil supplier.

The knock-on effects of the energy price rises have been felt across the world, and in the UK it exposed a price cap system that was “not fit for purpose for the kind of market we have today”, said Jonathan Brearley, the chief executive of Ofgem.

Around 1.5m Scots households saw their energy bills soar by up to £693 a year in April after Ofgem hiked the price cap by the biggest increase yet.

It meant that the three in four customers on default tariffs paying by direct debit saw an increase of £693 from £1,277 to £1971 while the rest who are on prepayment meters - and tend to be among the most vulnerable - have seen a rise of £708 from £1,309 to £2017.

Consumers have been warned they face another big hike to just under £3,500 when the next cap – which comes into effect in October – is announced later this month.

Analysts at Cornwall Insight have predicted the price cap is on track to rise to £3,615 a year from January, piling further pressure on households as the cost of living crisis intensifies.

Ofgem estimate that 613,000 households in Scotland were considered to be in fuel poverty and 311,000 in extreme fuel poverty.

A separate study found that 220,000 older households in Scotland will have insufficient income to cover their essential spending this year.

Age UK estimates the poorest older households in Scotland will need to drastically up the percentage of their net income spent on essential goods and services from 70% in 2021-22 to 87% in 2022-23 due to higher costs of living.

A household was considered to be in fuel poverty when it needed to spend more than 10% of its income on fuel – or energy. Extreme fuel poverty is when it is 20%.

HeraldScotland:

Age Scotland called for a rethink fearing that a further price hike on New Year's Day would plunge tens of thousands of older people in Scotland into fuel or financial poverty this winter.

"To do this during the coldest time of the year and after a tough autumn of higher prices is a cruel move and will pose a significant health risk to many vulnerable older households across Scotland," the charity said.

“With the cost of energy and food already spiralling out of control and 1 in 3 older households in Scotland already living in fuel poverty, and many more just on the cusp, we’re urging Ofgem to rethink their decision and for governments to consider how those on the lowest incomes can be protected. We can’t afford to wait for the worst effects to be felt and the devastating impact this decision would have on older people.”

Citizens Advice Scotland chief executive Derek Mitchell said: “The move to a quarterly price cap could mean that energy costs will increase more frequently and see a rise in the middle of winter.

“While we understand the benefit of more up to date prices being reflected in the cap, it will be harder for some people to budget if prices change more frequently."

Ofgem warned that as a result of the market conditions, the price cap would have to increase later this month to reflect increased costs, as expected.

However it said that the changes would mean that any fall in wholesale prices would be passed on in full to customers and more quickly with the quarterly price cap.

Ofgem chief executive Jonathan Brearley said: “I know this situation is deeply worrying for many people. As a result of Russia’s actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before. And that means the cost of supplying electricity and gas to homes has increased considerably.

“The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now. Today’s changes ensure the price cap does its job, making sure customers are only paying the real cost of their energy, but also, that it can adapt to the current volatile market.

“We will keep working closely with the Government, consumer groups and with energy companies on what further support can be provided to help with these higher prices.”

Mr Brearley later said that Ofgem was looking at taking money off standing charges, but warned that trade-offs were involved and “there aren’t easy answers in the market right now”.

Referring to his prediction in May that Ofgem was expecting an energy price cap in October “in the region of £2,800”, he said: “I would say that it’s very clear that we expect significant increases again in prices, even over and above the estimate that we made in May. And that just shows you how dramatically the market is changing.”

Asked about proposals to help customers, such as cutting VAT and green levies, he replied: “There is an almost £40 billion package of measures that are already in place to pay as discounts on our bills, but I think everyone recognises that the market has fundamentally changed since that package was announced, which was only two months ago, so every politician will be thinking about how they can mitigate that.”

He added: “I think we all recognise that more will need to be done.”

Business, Energy and Industrial Strategy Committee chairman Darren Jones said: “Whilst the change announced by Ofgem today will prevent more energy suppliers going bust, and the cost of failures being added to our bills, it also means customers will see their bills going up more frequently than before. These increases won’t be as big as before but they’ll be increases nonetheless.

“When the price of energy starts to come down, customers will see their energy bills reduce more quickly, but I don’t expect to see this happening until the end of 2024 or 2025.

“That’s why my committee has asked the Government to look at introducing a social tariff, as a more effective method of price regulation to help low income households.”

Changes to the price cap come as household energy bills are likely to remain at more than two-and-a-half times their pre-crisis levels until at least 2024, according to latest predictions.

In May, the Government announced an energy costs support package – worth £400 per household – in response to predictions that bills would rise to £2,800 for the average household in October.

The package also promised extra support for more vulnerable households.

National Energy Action director of policy and advocacy Peter Smith said: “Ofgem moving ahead now with passing price cap changes on to households quarterly rather than every six months wasn’t necessary and unfortunately means further significant price increases in January are inevitable.

“Average annual bills are already predicted to increase by £1,200 a year – a 177% increase since last October. Now, householders can expect further hikes just after Christmas, in the middle of heating season when energy costs are typically at their highest."