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Energy bills will fall by 7 per cent for millions of households from July, regulator Ofgem has confirmed.
However, this is based on average usage and the exact amount you pay will vary.
Here’s everything you need to know about how energy bills will change starting July 1.
Reading it another way: the price cap drop is not good for everyone as some will not see the full benefit
The average household paying by direct debit will see their annual gas and electricity bills fall from £1,690 to £1,568, or a drop of £122.
This is because Ofgem cut its cap rate, which sets the permanent charges and unit rates that households pay on variable rate energy tariffs.
What does this mean for my energy bills?
The figures above assume that a home uses average amounts of energy, so many homes will end up paying more or less.
They also assume that a customer pays by monthly direct debit.
For those with prepayment meters, average annual price-capped energy bills will be £1,522 from July, up from £1,643 currently.
Meanwhile, those who pay when an invoice is sent will pay £1,668 from July, a drop from £1,796 currently.
The amount of energy you use will also change the precise level of your bill.
Permanent charges are NOT going to go down
The drop in the price of the energy bill is not all good news. This is because Ofgem is only cutting the unit rates, not the daily charge.
The average electricity unit rate will be reduced by 9 per cent, from 24.5 pence per kilowatt-hour (kWh) now to 22.36 pence from July.
For gas, unit rates are also falling by 9 per cent, from 6.04p to 5.48p.
But the permanent charges are almost unchanged: these rates fall from 60.12 pence per day to 60.1 pence per day for electricity and from 31.43 pence per day to 31.41 pence per day for gas.
That adds up to £334 a year from July. This is bad news for low energy customers, because there is no way to avoid the standing charge, while households can use less energy where possible and avoid the unit price.
What is the future of energy bills?
Ofgem does not speculate on the future of its price cap, but analyst Cornwall Insight’s predictions have historically been fairly accurate.
He believes the maximum price will rise to £1,636.44 in October and rise slightly again to £1,634.20 in January 2025.
Should I consider fixing my energy bill?
For some time, most households have been applying providers’ standard “default” variable tariffs, which are governed by the price cap.
With energy bills set to rise later this year, taking out a cheaper fixed rate deal can help you save money.
But many fixed-rate energy deals are more expensive than the maximum price, either now or at the level forecast later this year.
Many solutions also carry costly early redemption charges if a customer wants to abandon the deal before its natural end point, typically 12 or 24 months.
To know if it’s worth accepting a fixed rate deal, you first need to know how much energy you use and the unit rates and ongoing charges you currently pay.
This can be found on your last energy bill or by logging into your online energy account.
Armed with this information, compare what you pay now with the unit rates and ongoing charges offered with any fixed rate you are offered.
If the solution is cheaper, either at the price you pay today or at the price you will pay from July, it is worth considering whether energy prices rise as expected.
What is Ofgem’s maximum price?
The price cap was introduced in January 2019 to prevent energy companies from overcharging customers on variable rate tariffs.
Most households were on fixed-rate energy deals at the time and only moved to variable-rate tariffs if they did not renew at the end of their term.
Why is the maximum price so important now?
After energy bills began to rise in late 2021, gas and electric companies responded by pulling all new fixed-rate agreements from the market.
They did this to try to avoid the widespread collapse that affected many energy companies, which were suddenly forced to sell energy for much less than it cost them to buy it.
Because cheap fixed rate deals had all but disappeared, almost all homes ended up on variable rates regulated by Ofgem’s price cap.
Why aren’t there more fixed rate energy agreements?
Most households have variable rate deals, not fixed rates, as when energy prices started to rise in late 2021, almost all energy companies started to stop offering fixed rates.
This came as dozens of energy suppliers collapsed as rising energy prices forced them to buy energy for far more than they could charge consumers, thanks to fixed tariffs that locked in prices for their customers.
Although tariffs are returning, most fixed energy tariffs are more expensive than the maximum price or only for existing customers.
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