Every 3 months energy regulator Ofgem reviews the energy price cap which limits how much a supplier can charge you for your energy.
The recent energy crisis has seen the price cap increase dramatically. However, as wholesale prices have fallen the energy price cap is set to be reduced in April.
What is the current energy price cap?
From the 1st April 2023, the energy price cap will fall by £999 to £3,280. This is the first time the energy price cap has fallen since 2020.
Despite the reduction in the price cap, home energy bills are still likely to increase due to the planned scaling back of government support.
Why has the energy price cap been reduced?
The price cap is set by energy regulator Ofgem to determine the maximum amount a supplier can charge per unit of gas and electricity on a standard tariff.
The price cap is reviewed every three months and is adjusted based on the current energy market. As wholesale prices have fallen in recent months, Ofgem has reduced the price cap to limit the amount energy suppliers can charge.
The price cap only affects home energy costs and does not apply to business electricity or business gas prices.
What will happen to my energy bills?
Although the price cap has been reduced, home energy costs may still go up. This is a result of the planned scale back of government support offered over the winter of 2022 and 2023 with the removal of the £400 winter bills discount.
However, the Energy Price Guarantee is set to be extended to July 2023. This will limit the annual cost of an average household energy bill to around £2,500.
Despite the reduction in the energy price cap, the average household energy bill could increase by around £400 in April 2023.
How does the Energy Price Guarantee work?
In October 2022, the energy price cap was set to rise 80% to £3,549. This increase saw the government step in to limit the cost of energy bills through the Energy Price Guarantee.
The government applied a discount on the unit rate of gas and electricity under the price cap. This is currently around 10p per kilowatt hour (kWh) for gas and 34p per kWh for electricity.
This reduced the average household’s annual bill to around £2,500. With the £400 winter bills discount added, the overall bill was reduced to around £2,100.
The discount provided by the Energy Price Guarantee has now been extended July 2023.
Can I switch to a cheaper home energy deal?
Homeowners are currently unlikely to find an energy tariff which is cheaper than your previous fixed rate tariff, especially if it was agreed a few years ago.
Most people will now compare home energy prices to the current price cap and Energy Price Guarantee. This has led to more people staying on standard variable tariffs as costs are reduced by the government support.
You can compare the latest home energy prices here.
How else can I lower my home energy bills?
Even if you’re on the best available deal for your household, there are still steps you can take to lower your energy bills.
Firstly, you should check that you’re paying the right direct debit amount. Your supplier may have overestimated your usage which can leave you in credit and still paying a high direct debit fee.
It’s important to remember that lowering your direct debit doesn’t lower the cost of your energy. If you pay too little each month, you could be faced with a significant bill at the end of the year. You will usually be in credit over the summer to make up for increased energy usage in the winter.
You should also make sure you have claimed the £400 winter bill discount. Customers on a prepayment tariff will not automatically receive their discount. Prepayment customers should have received a letter or email with a voucher each month to top up with. You can redeem these vouchers at most post offices.
You can find helpful tips on reducing your energy usage with our guide to saving energy in the home.