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Energy regulator, Ofgem has revealed that the lowered energy price cap. The level of the price cap will fall by £84 from October to its lowest level £1,042, driven by lower wholesale energy costs following the COVID-19 pandemic.
The level of the cap for prepayment meter customers will fall by £95 as a result of the change with Ofgem recommending that the price cap remains in place until 2021
The changes mean that around 11 million households on default tariffs and 4 million on prepayment meters (around half the population in total) will enjoy significant savings on their energy bills this winter.
The reduction is due to a sharp decrease in wholesale gas prices since the cap was last updated in February.
The regulator says that the COVID-19 crisis has depressed energy demand, although wholesale gas prices have started to recover since hitting a 20-year lows in the spring.
Ofgem adjusts the level of the cap twice a year to reflect the estimated costs of supplying electricity and gas to homes for the next six-month period.
Energy suppliers cannot charge customers who do not switch and are on default deals more than the level of the cap, although they can charge less. This ensures that these customers pay a fairer price for their energy.
Jonathan Brearley, chief executive of Ofgem, 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.”
Commenting on the announcement Alastair Douglas, CEO of finance experts TotallyMoney, said “TotallyMoney welcomes Ofgem’s lowering of the energy price cap for all customers on standard variable tariffs (SVTs) and default energy tariffs, which will further help households reduce their energy bills. This will be especially important this winter, amid threats of another lockdown and with people spending more time at home, risking higher energy costs. ”
Natalie Hitchins, Head of Home Products and Services at Which?, said “Many households have seen their energy bills increase during lockdown. While this latest cut to the price cap, which will bring it to its lowest-ever level, will be a welcome relief for customers on standard or default tariffs, they are still likely to be overpaying for their energy. ”
Stephen Murray, Energy expert at MoneySuperMarket, said “The expected news that Ofgem is due to drop the price cap by £85 is good news at first glance, but there are more savings to be had if people switch to a fixed tariff now. This will allow them to make the most of the current low wholesale energy prices.”
Peter Earl, Head of Energy at comparethemarket.com, said: “Don’t be fooled into thinking you’re getting cheap energy. The price cap is not a good deal, it’s a maximum price limit. While it is encouraging that from October customers on a standard or default tariff (SVT) on average will see their annual bill fall by £84, the customer could stand to save, on average, £217 more if they switched to one of the best priced deals on the market.”
“Customers who have switched supplier in the current price cap period have benefited from some of the lowest prices we have seen in recent years. The pandemic crisis has seen a rise in energy costs for households spending more time at home, paying £32 per month more on average. Customers on an SVT will have paid even more. We urge people to avoid being lulled into inertia as a result of this news, but rather shop around to see what savings they can make by switching.”