At first sight, it seems that a massive cost increase is exactly the sort of situation that the cap is designed to deal with. Households on fixed or tight budgets are going to find it extremely difficult to accommodate prices that reflect the true cost of gas.
However, maintaining the cap at its present level could be disastrous for the energy industry. Gas and electricity companies sprang up by the dozen after privatisation and, as in any industry, not every company could survive. In 2018 seven went bust, in 2019 nine and in 2020 four. However, even though 2021's 12% rise in the cap gave companies much more scope in their prices, an astonishing 28 companies went out of business.
Many energy companies use a technique called 'hedging' which is a way of buying gas supplies at an agreed cost to avoid unexpected price rises. However, when the market goes through the kind of turmoil we've seen in the past year, it gets much harder to use this process, because suppliers no longer have any reason to sell supplies cheaply. A large number of the companies that went bust did so because their hedging wasn't effective enough and they ended up supplying UK customers at a loss - paying more themselves than they could legally pass on.
The reason for this huge rise in the price cap is that virtually every company could be at risk of collapse now that they have no way of securing gas at the low rates they once enjoyed. The energy cap which was designed to protect ordinary householders becomes unworkable when worldwide economic conditions get out of control.