Ofgem, the UK’s energy regulator, recently announced a reduction in the Energy Price Cap for the period of July to September 2023. This comes as wholesale energy prices begin to fall after over a year of rising costs. Ofgem advises that prices are unlikely to return to pre-crisis levels soon. Let’s take a look at the implications of the Energy Price Cap reduction.
Energy Price Cap Explained
Introduced in 2019, the Energy Price Cap sets a maximum price that energy suppliers can charge households for each kilowatt-hour (kWh) of gas and electricity consumed. The cap aims to protect consumers from rising wholesale energy costs. The government’s temporary Energy Price Guarantee (EPG), first implemented in October 2022, has limited annual energy bills for a typical household to £2,500. From July, the EPG will increase to £3,000, but the new Energy Price Cap will be lower, resulting in a maximum energy bill of £2,074 (average) for a typical household in England, Scotland, and Wales.
Impact on Energy Bills
The reduction is expected to save the average household approximately 17% or £426 per year. However, the government’s Energy Bills Support Scheme, which provided a £400 discount on energy bills between October 2022 and March 2023, has now ended. There are currently no plans to reinstate the discount for the upcoming winter unless the government implements a similar scheme.
Who is Affected?
Households on default energy or standard variable tariffs are subject to the cap. Fixed tariff customers are not affected. Pre-payment meter users will see a slightly larger saving as their costs will be reduced to the same rate as direct debit users.
Standing Charges and Future Energy Costs
The fixed standing charge for energy connections will not change due to the Energy Price Cap reduction. The average daily standing charge for electricity will remain at 53p, and 29p for gas, totaling just under £300 per year on average.
Experts predict a further reduction in energy costs, but this will not be confirmed until Ofgem announces the cap for the period from October to December 2023 on August 25th.
In Summary
The Energy Price Cap applies to households on default energy or standard variable tariffs, while fixed tariff customers are not affected. Pre-payment meter users will see a slightly larger saving. The fixed standing charge for energy connections will not change. Experts predict a further reduction in energy costs, but this will not be confirmed until Ofgem announces the cap for the period from October to December 2023 on August 25th.
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