Energy bills are set to drop after Ofgem, the energy regulator, lowered the energy price cap to £2,074, following a fall in wholesale gas prices.
The new cap, which will be in place from July to September, is lower than the government’s Energy Price Guarantee (EPG) which currently takes the average typical bill to £2,500 and has been the default tariff for households.
The drop means households can expect to pay around 17% less for gas and electricity.
Jonathan Brearley, CEO of Ofgem, 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.”
The drop means households can expect to pay around 17% less for gas and electricity. Take a look at our sister site GoCompare to find the best energy deals.
How much will the Energy Price Cap Cost?
A typical bill will cost £2,074 once the new cap is in place, but this is not the maximum you can expect to pay. The cap is on the unit rates, so your final bill depends on how much energy you consume.
Here are the new rates from 1 July 2023.
- Unit rate: 30p per kWh (previously 33.2p kWh)
- Standing charge: 53p per day
- Unit rate: 8p per kWh (previously 10.3p kWh)
- Standing charge: 29p per day
The rates can vary by region..
The next Energy Price Cap announcement is in August (to come into play in October), when the rates may change.
Will I be able to switch to a fixed tariff energy deal?
Some experts have said the new cap and falling wholesale energy prices will pave the way for energy suppliers to once again offer fixed rate deals. These were widespread before the cost of living crisis but were taken off sale as providers weren’t able to offer a rate below the government’s energy price guarantee.
But that could all change soon once providers begin to compete for your custom.
However, it’s hard to predict whether you’ll be better off fixing as prices can change and go in either direction.
Analysts at Cornwall Insight predict the next price cap will likely be set at around £1,960 for the final three months of 2023, and then £2,026 for the opening quarter of 2024.
We will keep you updated once fixed rate energy deals start to come out.
The Energy Price Cap and the Energy Price Guarantee – what is the difference?
The Energy Price Cap, launched under then prime minister Theresa May’s short leadership, applies only to standard variable tariffs (SVT), also known as default tariffs. This is the tariff you’re automatically switched to once the term on your fixed or variable deal has expired.
Typically, SVTs are more expensive than fixed or variable deals, meaning households coming to the end of tariffs faced a significant hike when transferring over to the new plan. The energy price cap was put in place to ensure consumers weren’t being unfairly charged for not switching suppliers.
But a combination of rising wholesale prices, fewer and fewer fixed term deals and the collapse of some energy suppliers meant more people ended up on SVTs and became subject to the price cap. Rising prices then led to the cap being increased to more than £3,000 last autumn as the cost of living crisis took hold.
Further intervention was needed and Liz Truss’ government introduced the Energy Price Guarantee in October 2022, which in practice replaced the Energy Price Cap. This froze the unit cost of gas and electricity that households would pay, meaning households faced an average annual bill of £2,500.
Now, the lowering of the Energy Price Cap below the price of the EPG means it will take over in telling suppliers how much they can charge households.
As such, a typical household will spend around almost £500 less on energy bills over a year thanks to the cap than they would have done under the EPG.
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