The signify household energy bill will fall by £426 a year from 1 July when Ofgem reduces its price cap amid tumbling wholesale prices.
The cap drop- which limits the maximum amount seller can charge for each unit of gas and electricity used – means bills will be an average of £2,074 a year following the previous high of £2,500.
However, this is still well above the average £1,277 we were paying in October 2021, when the global gas crisis began and prices spiralled out of control.
Which? Energy editor Emily Seymour said: “While the new price cap will see typical bills drop by around £500, energy bills will still be almost double the amount before the energy crisis began – which will be unaffordable for some households.”
Between October 2021 and March last year, the price cap was £1,277. Amid spiralling wholesale prices, this rose to £1,971 between April and September last year.
What You Need to Know
Another considerable increase was incoming between October and December last year – with the tariff set to reach £3,549. It meant the government was under tremendous pressure to intervene, so it introduced the Energy Price Guarantee (EPG), which took Ofgem’s price cap out of the equation and capped all tariffs at £2,500. This came in addition to the £400 discount given to every home over the winter.
About 27 million households face slightly lower energy bills after Great Britain’s energy regulator, Ofgem, cut the price cap on gas and electricity to £2,074 from 1 July.
But most households will feel little relief after the government also cancelled several schemes to make bills more affordable.
Experts have warned that energy costs could stay at unprecedented levels, with millions of households remaining in fuel poverty, until the end of the decade.
How Ofgem’s Price Cap Might Influence Your Monthly Energy Expenses
Usually, Ofgem’s cap affects the bills for about 27 million households on standard energy tariffs by limiting suppliers’ rates for each gas and electricity unit. It reached £4,279 in the first months of the year before falling to £3,280 in April. But households won’t feel the full effect of falling energy prices because the government helped reduce bills over the winter with its energy price guarantee (EPG).
The scheme limited the typical household’s annual energy use bill to £2,500 – well below the Ofgem cap. The government also gave every family £400, split into monthly payments between October and April, to reduce costs further. Both those schemes have now ended. The wholesale price has also fallen, allowing Ofgem to lower the cap. These changes mean average annual bills will stay the same for most households from July.
Adapting to Ofgem’s Price Cap and Your Energy Bills
Yes, but not by much. Energy experts have predicted that Ofgem’s energy price cap, adjusted quarterly, will likely remain at similar levels for the rest of the year. They also think bills could remain unusually high for the rest of the decade.
Analysts at Cornwall Insight, a leading energy consultancy, predict the price cap will drop to about £1,870 at the subsequent adjustment in October before rising to just over £1,900 from January next year. The forecasts are subject to changes in the global energy markets – which remain at historically elevated levels because of Russia’s war in Ukraine – but Cornwall says it does not expect bills to return to pre-pandemic levels in the foreseeable future.
The good news is that energy suppliers may soon begin offering deals priced below the energy price cap to win over new customers as the switching market finally returns in earnest. Cornwall expects a tentative return of competitive fixed-rate deals from the third quarter of this year.
It’s also important to note that Ofgem’s cap will ceiling the amount you can be charged for each unit of gas or electricity used, but it does not cap the total bill. So if you use more than the average household, you will pay more than the cap.
There are also about 480,000 households that use communal heating systems – including residents of council-owned tower blocks – which are not protected by the Ofgem cap. They face a 350% rise in heating bills.
Tips for Optimizing Your Energy Expenses Under Ofgem’s Price Cap
The operators of these heat networks, such as local councils, can apply for government help with costs and are supposed to pass that on to consumers. Still, the system has been criticised because bills do not always break down the taxpayer-funded discount.
Ofgem’s energy price cap does not protect businesses, charities or public sector organisations, such as schools, hospitals and care homes.
Instead, the government has put forward a scheme that offers eligible firms a discount on the wholesale price of energy. There are more excellent discounts offered to energy-intensive businesses, such as manufacturers.
The support scheme took effect from 1 April and is expected to offer up to £5.5bn of support over a year. This is far less than the government provided through its original aid package, which made about £18bn worth of savings available to businesses over six months last year.