Following a reduction in the price cap, which sets a limit on how much suppliers may charge consumers for each unit of energy they use, homeowners will notice a big reduction in their energy bills starting in July. According to Ofgem, the average household’s annual gas and electricity bill would now cost £2,074. The government’s Energy Price Guarantee, which has kept the average payment at £2,500 since October, may come to an end as a result. So what is the energy cap?
What Is The Energy Cap?
In recent years, the energy price cap, which Ofgem now establish every three months, the industry regulator for the energy sector, has regulated the costs for variable tariff energy plans in England, Wales, and Scotland. It confirms the maximum cost that suppliers may bill homes for a unit of energy under a typical or default tariff.
After Russia invaded Ukraine, prices shot up. This prompted officials to declare that household expenses would now be altered. This meant a government guarantee to constrain them. A typical household’s yearly gas and electricity cost has been £2,500 under this since October. Note however Ofgem continued to set its own cap at a higher amount.
After the Energy Price Guarantee expires at the end of June, The Ofgem cap will once more determine costs. This starts, naturally, in July.
Forecasters anticipate a decrease in the average yearly cost to roughly £2,050. This is as a result of suppliers paying lower wholesale pricing. In Northern Ireland, where governing of energy is separate, there is a capping of household expenses at £1,950 annually.
Will Bills Go Down?
That is impossible to tell for certain, not least because global issues affect wholesale prices. One such example is the war in Ukraine. But according to energy consulting firm Cornwall Insight, homeowners in England, Wales, and Scotland will see another decrease after the one in July. The company anticipates the average annual cost to be £1,976.
Beyond that time frame, forecasting is challenging. But as of now, it is anticipated that the typical bill would increase once more to £2,045 in January. Before the end of the decade at the earliest, it does not anticipate that energy costs would return to their pre-Covid levels.
Prepayment Meters
The government has pledged to align prepayment energy prices with those for customers who pay with direct debit. This indicates that the cap should be the same for both payment methods. However, individuals who pay every three months in cash, cheque or bank transfer would pay much more. These consumers, according to Ofgem, are more likely to get into arrears.
What’s A Typical Household?
The estimates for an average household assume that a direct debit user uses 2,900 kWh of electricity and 12,00 kWh of gas annually. Your bill is calculated using an energy unit called a kilowatt hour. The majority of households, though, are unusual. Your actual energy usage, which is based on the number of occupants, the type of property, and its energy efficiency, determines how much you’ll be charged.
What Is The Energy Cap? Switching
As suppliers begin to give clients fixed arrangements, lower costs ought to indicate the return of market competition. As a result, customers will have the option to transfer suppliers for a fixed-term gas and electricity price. They are not impacted by the cap, unlike variable tariffs. Consumer advocacy organisations and authorities believe that might be good news for consumers, but they caution that not all situations will be appropriate for such deals.
Anyone who locks into a fixed plan would lose out on those savings if variable deals’ prices continue to drop. Instead of focusing only on the headline rate, anyone thinking about signing up for a fixed deal should also pay particular attention to standing costs and exit fees.
