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The average home energy bill will soon fall by £238 to £1,690 a year, as regulator Ofgem today confirmed its April 2024 price cap.
The price cap limits the maximum amount an energy company can charge for the gas and electricity units that households use, as well as daily charges.
Ofgem said the current average price-capped bill of £1,928 a year would fall by 12.3 per cent.
The current price cap sets the energy bills paid by more than 80 per cent of UK households, although the exact amount varies depending on gas and electricity usage.
Drop: Ofgem’s set price cap to fall to £1,690 from April
The headline price cap figure applies to households with variable tariff energy deals who pay by direct debit.
The April average maximum price will apply for three months until it is reset again in July 2024.
Ofgem said this morning: “This will see energy prices hit their lowest level since the Russian invasion of Ukraine in February 2022 sparked a new surge in an already turbulent wholesale energy market, increasing costs for suppliers and , ultimately, for customers.
Richard Neudegg, of Uswitch.com, said: “While no one will describe £1,690 as cheap, after more than two years of exorbitant energy bills, struggling households can finally dare to hope the worst is over.
‘A significant average 12 per cent drop in rates from current levels (and the lowest limit in two years) is a reflection that the wholesale energy market has been moving in the right direction.
“This price cap will apply from the beginning of April to the end of June, so the prospect of lower prices does not help consumers trying to get electricity for the rest of this winter.”
Why is Ofgem’s price cap so important?
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.
But after energy bills began to rise in late 2021, gas and electric companies responded by withdrawing 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.
How will rates change?
If you are on a standard variable tariff (default tariff) and pay for your electricity by direct debit, you will pay an average of 24.5 pence per kilowatt hour (kWh), up from 28.62 pence currently.
The daily fixed rate will increase to 60.1p per day, up from 53.35p. This is based on the average for England, Scotland and Wales and includes VAT. See below: Permanent positions in the spotlight.
If you are on a standard variable tariff (default tariff) and pay for your gas by direct debit, you will pay an average of 6.04 pence per kilowatt hour (kWh), compared to the current 7.42 pence per hour.
The standard daily charge is 31.43p per day, up from the current 29.6p. This is based on the average for England, Scotland and Wales and includes VAT.
What is the future of energy bills?
The maximum price is reset in July and again in October.
Cornwall Insight believes the average gas and electricity bill will fall back to £1,465.07 in July, before rising to £1,523.95 in October.
When will cheap fixed energy agreements return?
A big question for households is whether lower, more stable energy bills could encourage energy companies to bring back cheap fixed-rate deals.
Fixed rate tariffs have historically been much cheaper than variable tariffs, but they dried up once energy prices started to skyrocket in late 2021.
While energy companies have begun to relaunch fixed-rate energy deals, many are more expensive than maintaining the price cap or are only available to existing customers.
So should those with variable tariffs now consider a solution? Mr Neudegg adds: ‘If you are on a standard variable tariff, now is a good time to start evaluating your options.
“Some fixed offers available offer savings against the current price cap, but we expect there to be greater competition in the market now that prices will fall in April.”
More falls: Cornwall Insight believes the average gas and electricity bill will fall again in July
What else did Ofgem say?
Ofgem says the cost of living remains high and many households are struggling with their bills as ongoing charges rise and energy debt hits a record £3.1bn.
Jonathan Brearley, chief executive of Ofgem, said: “It is good news to see the price cap fall to its lowest level in more than two years and to see the average household’s energy bills fall by £690 from the peak. the crisis”. – but there are still big issues we need to address head-on to ensure we build a system that is more resilient in the long term and fairer for customers.
‘That’s why we are leveling up standing charges to end inequality for people with prepaid meters, many of whom are vulnerable and struggling, and are charged more upfront for their energy than other customers.
‘We also need to address the risk posed by persistently high levels of debt in the system, so we must introduce a temporary payment to help prevent an unsustainable situation leading to higher bills in the future.
‘We will be taking a step back to look at debt and affordability issues across the market for struggling consumers, something we will announce soon.
“These measures highlight the limitations of the current system (we can only move costs), so we welcome the news that the Government is opening the conversation on the future of price regulation, seeking views on how the agreements Standard energy prices can be made more flexible so that customers pay less if they use electricity when prices are lower.
‘But longer term we need to think about what more can be done for those who simply cannot afford to pay their energy bills even as prices fall.
“As we return to something closer to normal, we have an opportunity to reset and rethink the energy market to ensure it is prepared to protect customers if prices rise again.”
Permanent positions in the spotlight
Households have seen ongoing charges skyrocket over the past decade, meaning that even if energy use is reduced, this part of the bill doesn’t change.
The price cap in April causes the permanent charges that are part of the bill to increase again.
As a result, Ofgem said that while rising network costs have contributed to the rise in permanent charges, it is currently reviewing more than 40,000 responses to its call for views on charges it called for in November 2023.
How can you save on your bills?
The million dollar question. April is still over a month away when this new price cap comes into effect, so in the meantime you might want to consider draft proofing and reducing your boiler’s flow rate.
You may also want to consider better insulation and installing thermostatic radiator valves.
If you are having difficulties, you can consult the help that your provider offers you.
Read more here: How to save money on energy: what you need to know and energy-saving tips that work
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