Household energy bills to fall
After a winter where many of us have worried about how much our heating bills are going to be and how we’re going to afford them, the news we’ve all long been awaiting has finally arrived this morning with the announcement by Ofgem of its quarterly update to the Energy Price Cap for the period from 1st July to 30th September 2023. The new price cap has fallen, which means cheaper mains gas and electricity throughout the UK.
So, what does this mean and how will it affect the price you pay for your mains gas and electricity? Well, in this blog we’re going to take a look at what the Energy Price Cap is, how much it has fallen and what this means for us all.
What is the Energy Price Cap?
Let’s start by looking at what the Energy Price Cap is.
Introduced on 1st January 2019 by the UK government, The Energy Price Cap limits what you pay for your main gas and electricity. It sets a maximum price that energy suppliers can charge consumers for each unit of gas and electricity they use. It also sets a maximum daily standing charge. Ofgem is required to regularly review the level at which it is set, and as such the Cap changes every three months. It is based largely on wholesale energy prices, but also takes into account network costs and supplier operating costs.
It is a government protection scheme which applies to suppliers' standard and default tariffs, not fixed deals, and is calculated by Ofgem (The Office of Gas and Electricity Markets). Ofgem’s role is to ‘protect consumers by working to deliver a greener and fairer energy system’.
The Cap ensures that the profit energy suppliers make is capped and ensures that prices for customers on variable tariffs are fair and cost-reflective. However, the Cap is on unit rates, and not on overall household energy bills, and is based on a figure of 12,000kWh for a household’s annual gas use and 2,900 kWh for annual electric use. So for an individual customer, bills will vary depending on how much energy they use, rising and falling in line with their energy consumption, where they live and also how they pay for their energy.
How much has the Cap fallen?
For the first three months of 2023, The Energy Price Cap was set at an all time high of £4,279 for a dual fuel household paying by direct debit and based on typical use for an average household. However, households were protected by the government price guarantee which protects customers from increases in energy costs, but is due to come to an end at the end of June this year.
This morning (May 25th), Ofgem announced that, after a fall in wholesale prices, the Cap is to be reduced to £2,074. This is a drop of £426 from the current level of £2,500 – which has to be good news for around 29 million households (which includes around 4 million on prepayment meters) throughout the UK that will be affected by the reduction.
However, whilst unit rates are falling from 1st July, standing charges (currently 29p per day for gas and 53p per day for electricity meaning even before you’ve used a unit of energy you’ll pay £5.74 a week just to be connected) are remaining the same. So, those households using less energy will benefit less than those that use more energy.
Jonathan Brearley, Ofgem chief executive, said ‘After a difficult winter for consumers it is encouraging to see signs that the market is stabilising and prices are moving in the right direction. People should start seeing cheaper energy bills from the start of July, and that is a welcome step towards lower costs’.
However, experts are warning that, whilst the Price Cap might drop a bit lower in the final three months of this year, we’re unlikely to see large reductions. Kate Mulvany from Cornwall Insight, speaking on Radio 4's Today programme, said ‘For the rest of this year, we think that it’s unlikely that there’s going to be any further substantial falls as prices could rise in the winter months’.
Who is eligible for the Energy Price Cap?
The Energy Price Cap applies to you if you’re on a default energy tariff, the most common being a ‘standard variable’ tariff, regardless of how you pay for your energy. This means that the amount you pay for your energy is subject to price changes. However, the tariff can’t be higher than the Price Cap.
However, if you’re on a fixed-term energy tariff, i.e. one with a fixed end date and agreed fixed per unit price, the Price Cap doesn’t apply to you. Also exempt are some green and special time of use tariffs. If you’re not sure whether the cap applies to you, we’d recommend you check your energy bill or contact your energy supplier.
How can I save money on my energy bills?
The cost of living crisis means we’re all having to tighten our belts and look at ways to save money, and there’s lots of things you can do to save energy used in your household and ultimately reduce your bills. Read our blogs on energy efficiency in the kitchen and how to reduce heat loss at home for our expert tips and advice.
There are some very simple steps we can all take, such as turning of lights when you leave a room and using a 30 degree cycle when using your washing machine, which can really make a difference to our bills. The Energy Savings Trust chart shows potential savings that can be made over the period of a year, based on a typical three-bedroom gas-heated home in Great Britain.
And if you use heating oil, switching to Premium Heating oil can also help you make savings – it’s better and more efficient by up to 15% than standard heating oil. It’s been specially formulated to make your oil fired central heating boiler run more efficiently so you’ll use less fuel than normal, reduce your running costs and because it’s cleaner too, there’s less worry about experiencing an expensive boiler breakdown.
Don't forget - we're always on hand to offer help and advice. Get in touch on 01423 770 666 or email us at helpoil@northernenergy.co.uk.