After more than a year of rising energy bills, regulator Ofgem has announced a reduction in the Energy Price Cap from July to September. This is because wholesale energy prices are starting to fall. But Ofgem says it’s unlikely that prices will return soon to the levels we saw before the energy crisis began.
So will a reduction to the price cap make a big difference to your household bills, and will prices keep going down? We take a closer look.
What is the Energy Price Cap?
In 2019, the government introduced the Energy Price Cap in response to rising wholesale energy costs. It sets a maximum price that energy suppliers can charge households for each kilowatt hour (kWh) of gas and electricity used.
But since October, the annual energy bill for a typical household using gas and electricity (paying by direct debit) has been limited to £2,500 by the Energy Price Guarantee (EPG). This is an additional temporary measure that was first put in place by the government in October 2022 because the Energy Price Cap was so high. The government’s Energy Price Guarantee will go back up to £3,000 from July.
This means new Energy Price Cap will be the lower of the two, taking the maximum energy bill for a typical household in England, Scotland and Wales to £2,074 a year. That’s around 17%, or about £426 cheaper for the average household a year. See below.
Energy Price Cap Level:
April price cap: £3,280
July price cap: £2,074
Saving: £1,206
Typical household energy bill under the Energy Price Guarantee:
April price cap: £2,500
July price cap: £2,074
Saving: £1,206
* Figures are for typical domestic consumption paying by direct debit and will vary based on actual household usage.
When you’re working out how much your bills will be compared to the last six months or so, it’s worth remembering that the government’s Energy Bills Support Scheme has now come to an end.
From October 2022 until March this year, all households were given a discount of £400 off energy bills as part of the scheme. This worked out as a credit of £66 credit to your electricity bills in October and November and £67 in December, January, February and March. There aren’t currently any plans to apply the discount again this winter unless the government reinstates a similar scheme.
Does the Energy Price Cap affect me?
If you’re on a fixed tariff for your energy supply, then you won’t be affected by the price cap.
The Energy Price Cap is applied if you’re on a default energy, or standard variable, tariff. It sets a maximum price that energy suppliers can charge for every kilowatt hour (kWh) of energy used.
If you have a pre-payment meter, the Energy Price Cap reduction will offer a slightly bigger saving as the cost will be reduced to the same rate as direct debit users.
If you pay by direct debit, your energy bills are usually based on an estimate of how much you use. So if you’re in credit, it’s worth doing a meter reading and contacting your supplier to check you’re still paying the right amount.
How will the change impact my energy bills?
The Energy Price Cap will be set at £2,074 a year from July to September. But this is just an estimate for a typical, or ‘medium-use household’. And it’s not a cap on your total bill, but instead limits what suppliers can charge you per unit of energy used.
Energy Price Cap: What’s the average rate charged per unit of energy used?
Gas:
Energy Price Cap (Apr-Jun 2023): 10.3p per kWh
Energy Price Cap (Jul-Sep 2023): 7.5p per kWh
Electricity:
Energy Price Cap (Apr-Jun 2023): 33.2p per KWh
Energy Price Cap (Jul-Sep 2023): 30.1p per kWh
Based on average rates for direct debit users, which vary by region
Ofgem estimates a typical or ‘medium-use household’ as a two- to three-bedroom house with 2 or 3 people living in it.
If you live in a flat, or a one-bedroom house, your energy use is estimated to be low. And if you live in a four-bedroom home, with 4-5 people, your energy use is estimated to be high. See below.
| Energy use | Example – size of home & number of residents | Typical annual gas use | Typical annual electricity use |
|---|---|---|---|
| Low | Flat or 1-bed house; 1-2 people | 8,000 kWh | 1,800 kWh |
| Medium | 2-3 bed house; 2-3 people | 12,000 kWh | 2,900 kWh |
| High | 4+ bed home, 4-5 people | 17,000 kWh | 4,300 kWh |
Source: Ofgem
How much you’ll pay also depends on how energy-efficient your home is, and which appliances you use – and how often you use them.
Energy usage is calculated in kilowatt (kWh) hours, or units. One kWh is enough to power a 100-watt lightbulb for 10 hours, but in comparison, it takes 4.5 kWhs to power a single cycle of a tumble dryer.
Will there be a change to the standing charge on my bill?
The fixed standing charge you pay just to have a connection, regardless of how much energy you use, won’t change. The amount you’ll pay depends on your supplier, what tariff you’re on, and where you live. The average daily standing charge for electricity will remain at 53p a day, and 29p a day for gas. That works out at just under £300 a year on average.
Will energy costs continue to fall?
Experts have forecasted a further reduction, but this won’t be confirmed until 25 August when Ofgem announces the cap for the period from October to December 2023.
When Ofgem announced the quarterly update to the Energy Price Cap from July, CEO Jonathan Brearley 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.
“In the medium term, we’re unlikely to see prices return to the levels we saw before the energy crisis, and therefore we believe that it is imperative that government, Ofgem, consumer groups and the wider industry work together to support vulnerable groups. In particular, we will continue to work with government to look at all options.”
What other government support is there for energy bills?
You can find out more about some of the government-funded schemes in England, Scotland and Wales to help with energy bills here.
One of the schemes that offers help during the winter months is the Warm Home Discount Scheme. If you get benefits, or if you or your partner get the Guarantee Credit element of Pension Credit, you could get a discount of £150 off electricity bill this winter, or £150 added to your prepayment meter under the scheme. You may be able to get a discount on your gas bill instead if your supplier provides you with both gas and electricity, and you’re eligible. The scheme reopens in October 2023 and more details will be provided in the coming months on
The Energy Bill Support Scheme gave every household £400 of their electricity bill between October 2022 and March this year. This was an automatic payment. But if you have a prepayment meter, this may have been sent to you as a voucher by text message, email or post. If you haven’t received it, contact your supplier and ask them to send you a new one. You can use the voucher until 30 June 2023.
You may also be eligible for benefits, grants and help offered by the government and energy suppliers. If you live in Northern Ireland, you can find more information here.
Written by the team at Rightmove.