Ofgem lowers energy price cap ahead of upcoming winter

Default tariffs and prepayment tariffs will benefit from reduced price cap over 6-month period

Ofgem lowers energy price cap ahead of upcoming winter

Ofgem confirmed that it will be lowering the energy price cap for default tariffs by £75 on 1st October, thanks to lower wholesale energy prices.

The current price cap, which was £1,254 a year, will be reduced to £1,179 a year for the upcoming winter from October to March.

This will affect 11 million households around the country who remain on default tariffs, also known as standard variable tariffs (SVTs).

Prepayment meters, which are currently installed in 4 million households, will also benefit from a £25 reduction during the same six-month period, down from £1,242 a year to £1,217.

On a national level, UK customers are set to save £925 million on their energy bills; £825 million will be saved by customers on SVTs and £100 million by prepayment customers.

Victoria Arrington, a spokesperson for energyhelpline, said: “This price cut is a great relief for millions of energy customers, who will see their energy bills go down.

“For suppliers however, this lower price cap is more of a challenge. Many of them are already struggling and for some this could mean they go to the wall this autumn. The Big Six could be particularly hard hit by the new cap, with domestic energy profits already dramatically down – and things may get even worse.

Since 18th July last year, when the price cap became law, 12 small energy suppliers such as Spark Energy have gone bust.


What are energy price caps?

The price cap came into effect on 1st January this year and was introduced as a means of protecting vulnerable households, as well as loyal customers from being overcharged by their energy.

The energy price cap became law on 18th July of last year, following the passage of the Domestic Gas and Electricity (Tariff Cap) Act.

So far, this is the second revision of the energy price cap. The previous revision was made on 1st April when it was raised by £117.

From 2020, Ofgem will revise the energy price cap twice a year for households in England, Scotland, and Wales. Northern Ireland have their own price cap and regulator, the Northern Ireland Authority for Utility Regulation (NIAUR). 


How will this affect my energy bill?

Price caps affect the cost of unit rates for SVTs, so high energy usage will still still equate to high energy bills and vice versa.

While standard variable tariffs are able to benefit from price cap reductions such as the one in October, it also means that they are affected by price cap rises.

If you would like more security and control over your energy bills, then a fixed rate tariff may be more suitable for your household.

This guarantees a fixed unit rate until a specified end date, and their unit rates tend to be better value than default tariffs.

“It is vital for customers to remember that the price cap level is still far above and beyond what they can save by switching.

“With the cheapest tariff in the market at £846, customers could still save a potential £333 more than the price cap level if they just take a few minutes to switch and save.”


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