Energy price cap: From April, bills will fall by £238 a year, Ofgem says

Average household energy bills will soon fall by £238 to £1,690 per year as regulator Ofgem today confirmed its price cap for April 2024.

After the switching market collapsed following the spike in energy prices in 2021, the price cap limits the maximum amount an energy company can charge for the units of gas and electricity used by households, as well as daily fixed costs.

Ofgem said the current bill with an average price cap of £1,928 per year would fall by 12.3 per cent.

The current price cap determines the energy bills paid by more than 80 percent of British households, although the exact amount varies depending on gas and electricity consumption.

The nominal price ceiling applies to households with energy contracts with variable rates that pay by direct debit.

The average price cap for April will apply for three months until it is reset in July 2024.

Ofgem said this morning: ‘This will see energy prices reach their lowest levels since Russia’s invasion of Ukraine in February 2022 caused a further spike in an already turbulent wholesale energy market, driving up costs for suppliers and ultimately customers.’

Richard Neudegg of Uswitch.com said: ‘While no one would describe £1,690 as cheap, after more than two years of eye-watering energy bills, distressed households are finally daring to hope that the worst is over.

“A significant average decline of 12 percent in rates from current levels – and the lowest cap in two years – is a reflection of the wholesale energy market moving in the right direction.

“This price cap applies from early April to late June, so the prospect of lower prices will not help consumers get through the rest of this winter.”

Why is the Ofgem price cap so important?

The price cap was introduced in January 2019 to prevent energy companies from overcharging their customers with variable rates.

At the time, most households had fixed-rate energy contracts and only switched to variable-rate tariffs if they did not renew at the end of their term.

But after energy bills started to rise in late 2021, gas and electricity companies responded by withdrawing all new fixed rate deals from the market.

They did this to try to prevent the widespread collapse that affected many power companies, which were suddenly forced to sell power for far less than it cost them to buy it.

As cheap fixed rate deals virtually disappeared, almost all homes ended up on variable rates, regulated by the Ofgem price cap.

How will the rates change from April?

Electricity rates

If you are on a standard variable rate (standard rate) and pay for electricity by direct debit, you will pay an average of 24.5 cents per kilowatt hour (kWh), compared to 28.62 cents today.

The daily standing charge increases from 53.35 pence to 60.1 pence per day. This is based on the average in England, Scotland and Wales and includes VAT. See below: Ongoing costs in the spotlight.

Gas rates

If you are on a standard variable rate (standard rate) and pay for your gas by direct debit, you will pay an average of 6.04 pence per kilowatt hour (kWh), compared to 7.42 pence per hour today.

The daily standard rate is 31.43 pence per day, compared to 29.6 pence today. This is based on the average in England, Scotland and Wales and includes VAT.

What is the future for energy bills?

The price cap will then be reset in July and again in October.

Cornwall Insight believes the average gas and electricity bill will fall again in July to £1,465.07, before rising to £1,523.95 in October.

When will cheap fixed energy deals return?

A big question for households is whether lower, more stable energy bills could encourage utilities to bring back cheap fixed interest rates.

Fixed rates have historically been much cheaper than variable rates, but dried up when energy prices started to soar in late 2021.

Although energy companies have started to relaunch fixed-rate energy contracts, many of them are more expensive than sticking to the price cap, or are only available to existing customers.

Should those with variable rates consider a solution now? Mr Neudegg adds: ‘If you have a standard variable rate, this is a good time to assess your options.

‘Some available fixed deals offer savings over the current price cap, but we expect there will be more competition in the market as prices fall in April.’

What else did Ofgem say?

Ofgem says the cost of living remains high and many households are struggling with their bills as fixed costs rise and energy debt reaches a record £3.1 billion.

Jonathan Brearley, CEO of Ofgem, said: ‘This is good news to see the price cap fall to its lowest level in more than two years – and to see energy bills for the average household fall by £690 since the height of the crisis – but there are still major issues that 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’re leveling out fixed costs to end inequality for people with prepayment meters, many of whom are vulnerable and struggling as they are charged more upfront for their energy than other customers.

‘We also need to address the risk posed by persistently high debt levels in the system, so we need to introduce a temporary payment to help prevent an unsustainable situation from leading to higher bills in the future.

“We will be taking a step back to look at issues around debt and affordability in the market for struggling consumers, which we will announce soon.

‘These steps highlight the limitations of the current system – we can only shift costs – so we welcome the news that the government is opening the conversation on the future of price regulation, seeking views on how standard energy deals can be made more flexible so that customers pay less if they use electricity when prices are lower.

‘But in the 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 normality, we have an opportunity to reset and reframe the energy market so it is ready to protect customers when prices rise again.”

Ongoing costs in the spotlight

Households have seen their fixed costs rise dramatically over the past decade, meaning that even if you cut back on energy consumption, this part of the bill will not change.

Due to the change in the price ceiling in April, the fixed rate of the energy bill for consumers will increase again.

As a result, Ofgem said that while rising network costs have contributed to the increase in fixed costs, it is currently assessing more than 40,000 responses to its call for input on the rates it requested in November 2023.

How can you save on your bills?

The million dollar question. We’re still over a month away from April 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.

Also consider better insulation and installing thermostatic radiator valves.

If you are still unsure, you can check what help is available to you from your supplier.

Read more here: How to Save Money on Energy: What You Need to Know and Energy Saving Tips that Work