Following the introduction of the new price cap by energy regulator Ofgem, a significant reduction in domestic gas and electricity prices has now come into effect across England, Wales, and Scotland.
This change is expected to provide some relief to households struggling with high energy costs, but experts warn that prices are likely to rise again by October.
Price Cap Reduction: The new price cap, which came into force on Monday, reduces the average annual energy bill for a typical household by £122, bringing the cost down to £1,568 – the lowest in two years.
This decrease is a welcome development for many, especially after the sharp price increases seen in the aftermath of Russia’s invasion of Ukraine.
Future Price Increases: Despite the current reduction, forecasters predict that the respite will be short-lived. Consultancy firm Cornwall Insight has projected that a typical household’s annual bill will rise to £1,723 in October, an increase of £155 or 10% from the current rate.
Adam Scorer, Chief Executive of the charity National Energy Action, emphasized the looming challenges: “Modest falls in summer look set to be wiped out by bigger rises in autumn when people will need to put the heating back on.”
Impact on Households: The price cap directly impacts the gas and electricity bills of 28 million households. It limits the maximum price suppliers can charge per unit of energy rather than capping the total bill amount.
Therefore, actual bills vary based on individual energy consumption. Larger properties with higher usage will pay more, while smaller properties with lower usage will benefit more significantly from the price cap.
In Northern Ireland, energy prices are regulated separately, but they are also experiencing a decline.
Economic Context: The reduction in energy prices comes after a period of unprecedented highs, which saw the government intervening to limit bill increases.
This intervention helped mitigate some of the inflationary pressures on the economy. However, current energy costs remain approximately £400 higher than three years ago, stirring debate during the ongoing election campaign.
Household energy debt has also become a significant concern, with a collective debt of about £3 billion owed to suppliers. This debt has primarily accrued due to the high prices experienced over the past few years.
Prepayment Meters and Payment Methods: For those using prepayment meters, which generally top up more during the colder months and often face greater financial hardship, the impact of the summer price drop may be less immediate.
Most households, however, pay by direct debit, which smooths payments throughout the year. Suppliers are expected to inform these customers about the latest changes in prices.
Advice for Consumers: Experts recommend that consumers take meter readings now to ensure they are billed correctly at the new rates. Ofgem is currently reviewing the price cap calculation methodology and considering feedback from a consultation on standing charges.
Detailed Changes: From July to the end of September, the new prices are as follows:
- Gas prices are capped at 5.48p per kilowatt-hour (kWh)
- Electricity prices are capped at 22.36p per kWh
- A typical household uses 2,700 kWh of electricity and 11,500 kWh of gas annually
Households using prepayment meters will pay slightly less, with a typical annual bill of £1,522. Conversely, those paying quarterly by cash or cheque will see higher bills, averaging £1,668.
The standing charges remain unchanged at 60p per day for electricity and 31p per day for gas, although these can vary by region.
Energy Saving Tips: As the warmer months continue, experts offer several tips to help households manage their energy use and keep bills down:
- Adjust your boiler settings: If your hot water is too hot to wash your hands comfortably, the setting is too high. Reducing the temperature can save energy.
- Manage draughts: Simple measures like placing a black bag filled with scrunched-up paper in an unused chimney or sealing draughty areas can make a significant difference.
- Limit shower time: Aim for four-minute showers. To help with this, the charity WaterAid has created a playlist of four-minute songs to keep you on track.
Conclusion: While the new price cap offers temporary relief, the outlook for winter suggests a return to higher costs, underscoring the ongoing challenges faced by many households in managing energy expenses.
As the situation evolves, consumers are encouraged to stay informed and proactive in managing their energy usage.
This article was created using automation technology and was thoroughly edited and fact-checked by one of our editorial staff members
