Energy bills set to fall for millions of households

Energy bills are to fall for millions of British households this April after the regulator lowered price caps. Ofgem has reduced the default price cap and pre-payment meter cap by £17, which the regulator said would lower bills for about 15 million households.

The default price cap, which protects around 11 million households, is set to fall from £1,179 to £1,162 for the summer period (April – September). The pre-payment meter cap, which protects a further 4 million households, will fall from £1,217 to £1,200 per year for the same six month period.

A large part of the reduction in the caps is due to wholesale energy prices continuing to fall between August 2019 and January 2020. A strong supply of gas, such as record amounts of liquefied natural gas and healthy gas stock inventories, has been the main factor pushing down wholesale prices.

As a result, the wholesale energy cost element of the default tariff cap fell from £446 to £408. These reductions offset cost increases totalling £22 of other elements such as operating costs, network charges, smart meter costs and environmental schemes, resulting in an overall reduction of £17 in the level of the default tariff cap.

During 2019, households protected by the default price cap are estimated to have saved £1 billion on their energy bills. More savings were unlocked by households since the default cap was introduced on 1 January 2019 as switching rates reached an all-time high in April 2019.

Currently, switching away from a default tariff to a cheaper deal could save a typical household up to £305. Households are encouraged to shop around to access these savings. Ofgem closely monitors all suppliers’ approaches to complying with the cap and has taken tough action when they have not met their obligations.

This summer, Ofgem will carry out a review for the Secretary of State on whether the market conditions exist for the default price cap to be lifted or be extended past 2020.

Jonathan Brearley, Chief Executive at Ofgem, said “The default price cap is designed to protect consumers who do not switch from overpaying for their energy, whilst encouraging competition in the retail market.”

“Suppliers have been required to become more efficient and pass on savings to consumers. In its first year, the cap is estimated to have saved consumers £1 billion on average on their energy bills and switching rates have hit record levels.”

“Today’s announcement is further good news for the 15 million households covered by both price caps who will see their energy bills fall in April. Households can reduce their energy bills further by shopping around for a better deal.”

Peter Earl, Head of energy, at comparethemarket.com, said “A cut of £17 to the price cap for the average household sounds like great news but behind the fanfare, millions of energy customers may incorrectly believe that their energy bills will fall. The reality is that only customers on the typically more expensive standard or default tariffs will automatically see their energy costs decrease.”

“The price cap is a price fix – it is the maximum amount energy providers are permitted to charge their customers on standard and default tariffs, and as a result it should be seen as the absolute ceiling of what the public should be paying. With the cheapest average 1 year fixed tariff on the market more than £300 cheaper than the price cap level coming into effect on April 1, switching provider is an effective way for consumers to save money and beat the cap.”

Alastair Douglas, CEO of TotallyMoney said “The fall in the energy price cap could seem like great news on the surface. However, it brings to light the fact that many don’t know they’ve automatically been put onto a SVT (standard variable tariff) by their supplier when their fixed tariff ended, as is the case with most energy suppliers.”

”If you’re on a standard variable tariff, today’s decrease in the energy price cap could save you around £17 a year. But, SVTs remain incredibly expensive in comparison to the rest of the market. In fact, the amount you could save is up to 18 times more by switching to a completely new tariff.”