Energy Prices Fall Within the UK
Ofgem has reduced the cap on energy bills to the lowest ever
How does the price cap work?
There has been a big change to the price cap last week. Before we look into it, let’s start revisit what the price cap actually is.
The price cap sets the maximum amount an energy supplier can charge you for two things. It outlines a maximum for how much you can be charged for each unit of energy you consume. It also sets a maximum for your daily standing charge (the amount you pay each day).
As it currently stands someone who uses a typical amount of energy pays a maximum of £1,126 per year. From Thursday 1st October this will drop to £1,042 per year for the same usage.
The amount of the price cap is reviewed in April & October of each year. It is the Secretary for Business, Energy and Industrial Strategy who makes the final decision on any extension.
If you’re wondering how the energy price cap works and what’s changing you can start by seeing this hand graphic ofgem pulled together.
What's happening to my energy bill?
As we know, from January 1st 2019 the UK energy regulator (Ofgem) introduced a price cap which set a maximum amount an energy supplier can charge you.
From October 2020, the price cap will fall by £84. This brings the total level down to its lowest ever at £1,042.
If you’re a pre-payment customer, it’s even better news. The price cap will reduce by £95 for prepayment customers.
Standard default tariffs are the most expensive. If you haven’t switched energy suppliers within the past 12 months it’s very likely that you’re on one of them. You can cancel your supply at any time.
Important to know: The price cap doesn’t affect the maximum of your bill, it just sets a maximum you can be charged per unit of energy you use. As we know, if you use more, you will be billed more.
The price cap is welcomed news, however it doesn’t guarantee you aren’t overpaying.
Do I need to do anything about the price cap?
The price cap applies to all energy suppliers within the UK. This is something that energy suppliers will implement and you don’t need to do anything. However, this doesn’t mean that you’re not overpaying.
The best thing to do is to get yourself on a cheaper energy deal with a reputable supplier. You can get this sorted in a couple of minutes in our home setup service.
You can expect to save up to £384 and have the confidence you’re on a great deal.
How long will the new price cap last for?
It has not been officially decided yet, but the energy regulator in the UK (ofgem) has recommended that it stays in place until 2021.
This means we can expect to have a reduction in our energy bills for at least a year 🎉
The price cap doesn’t seem to be going anywhere, and it’s a safe bet to assume that it will be in place for the foreseeable future.
Even if political party changes, new governments tend to promote pro-consumer policies with energy as it plays well. Removing a price-cap would be extremely unfavourable from a perception perspective, even if it worked out more beneficial to create a competitive market.
Therefore, we can safely assume the price-cap will be within us for at least the short-term.
Why has the price cap been reduced?
The wholesale price of gas & electricity (the price energy suppliers pay for energy) has fallen. This means that it now costs less for energy suppliers to buy energy and the profit per customer will increase.
The purpose of the price cap is to limit the amount that energy suppliers can charge customers on their standard variable tariffs.
The reduction the price cap is to pass on the savings from this change to customers, rather than increasing the profit of energy suppliers.
Jonathan Brearley, ofgem’s chief executive, 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.”