Energy Bills to Fall by £84
Eleven million households are set to see their winter energy bills shrink by an estimated £84 following energy watchdog Ofgem’s latest price cap, which comes into effect in October this year.
The reduction in gas and electricity costs comes after wholesale energy prices plummeted to a 20 year low during the Covid-19 lockdown. With the price cap dropping from £1,126 to £1,042 a year, this is the lowest level since the price limit was first introduced, in January 2019.
Four million homes on prepayment tariffs will also see a fall in their energy costs, as their current cap will also be cut, by from £1,164 to £1,070 - an annual saving of £94.
What is the energy price cap?
Ofgem’s energy price cap is a limit on the cost suppliers can charge per unit of gas or electricity for customers on standard variable tariffs and prepayment meters.
At present, the price cap is reviewed twice a year, with changes coming into effect every April and October.
Although Ofgem announces the energy price cap in terms of average annual cost, it is a limit on the price of energy per unit, rather than a maximum bill. For those using more or less energy than the typical household, annual costs could work out more expensive or cheaper.
Although the latest price cap is the lowest since it was first introduced, it still falls short of previous industry forecasts, which predicted a drop of up to £100 per year for standard variable tariff customers. Energy costs could increase again when the next price cap is announced in April, as wholesale energy prices look set to recover following the easing of lockdown restrictions.
The UK’s wholesale energy markets hit record lows during the early months of the coronavirus pandemic, as demand for gas and electricity plummeted with the closing of pubs, restaurants, offices and factories.
The lack of energy demand even led to a record coal-free run for the country’s electricity grid, with some households even being paid to use up excess electricity that was generated during the lockdown.
Are there other ways to save on energy bills?
Announcing the price cap update, Jonathan Brearley, chief executive of Ofgem, said: “Millions of households, many of whom face financial hardship due to the COVID-19 crisis, will see big savings on their energy bills this winter when the level of the cap is reduced.
“They can also reduce their energy bills further by shopping around for a better deal. Ofgem will continue to protect consumers in the difficult months ahead as we work with industry and government to build a greener, fairer energy market.”