Energy regulator Ofgem has lowered its energy price cap to £2,074 per year for an average household to reflect tumbling wholesale gas prices.
The new cap is £1,206 lower than the current level of £3,280. It comes into effect from 1 July, and will remain in place until the end of September.
However, households will not feel the full effects of the price cap decrease, as since last autumn the country has been protected by the Government’s energy price guarantee. Analysts predict the average household is likely to see its annual bill fall by just £430 per year.
Households are being encouraged to send meter readings to their energy supplier before 1 July to ensure they are paying the lower prices as soon as possible.
Accurate readings will stop the your supplier from estimating usage and potentially applying the old higher prices to energy that is used after prices drop.
How do I take and submit a meter reading?
The first thing you will need to do is locate your energy meter, which should be somewhere inside – or possibly on the outside – of your house. Your reading will be displayed on the meter.
Once you have the figures, you can log into the online account you have with your supplier and enter them into the relevant section or online form.
Many suppliers also accept meter readings via their app, WhatsApp, text message and telephone. Check with your individual provider to see which methods are available.
Customers with a working smart meter or prepayment meter do not need to submit a meter reading as they are automatically sent to providers.
However, prepayment users can ensure they are benefiting from the price reductions at the earliest opportunity in other ways.
Consumer expert Martin Lewis told Good Morning Britain viewers: “For people on non-smart electricity prepayment meters. The way you trigger it to put the new cheaper prices in is you top up. So what I would suggest you do is if you’ve got enough energy for this week, do not top up before Saturday.
“You need to top up on Saturday, even if you only top up the minimum – £1 – because when you top up on Saturday that then tells your meter the new rate and then from Saturday onwards it will be cheaper. If you don’t top up on Saturday, then there is potential you will be paying the higher price until you top up.”
Prepayment gas meters will automatically adjust to the new rate.
What if I cannot submit a reading before 1 July?
If you cannot submit a meter reading before 1 July then do not worry. As long as you make sure a reading is done relatively soon, you will reduce the chance of any negative impact on your bill.
MoneySavingExpert.com explains: “You can give a reading a few days before or after and any discrepancy should be minor.
“Or, some firms let you backdate your reading, so you take the actual meter reading on Friday 30 June or Saturday 1 July and note it down, but then submit it at a later date.”
How does the energy price cap work?
The energy price cap limits the amount a supplier can charge for their default tariff. It was launched in January 2019 by Ofgem with the intention of keeping down the cost for households across the UK.
It includes the standing charge (a fixed daily amount you have to pay for energy, regardless of how much energy you use) and the maximum price for each unit of electricity and gas. The price is set per kilowatt hour (kWh).
To show what this might look like for an average person, Ofgem uses a figure of 12,000kWh for a household’s annual gas use when announcing the price cap. However, this is just a guide to see what the change in price cap does to a typical household’s annual energy bill.
The Government introduced the energy price guarantee as a temporary replacement for the price cap last autumn to protect consumers from sharp price increases, after Ofgem announced a planned 80 per cent increase to the cap. The cap peaked at £4,279 in January this year as the pandemic and the war in Ukraine pushed up wholesale prices.
Under the guarantee, suppliers have been further restricted in what they can charge households per unit of energy, with the Government making up the difference.
The average household pays £2,500 per year on their energy bills under the guarantee (33.21p per kWh for electricity and 10.31p for gas), though the actual amount people will pay varies depending on their usage.
The guarantee was due to rise £500 to £3,000 in April, but the Chancellor, Jeremy Hunt, made the decision to keep it at £2,500 until June.
How will the new price cap affect bills?
Analysts predict the average household is likely to see its annual bill fall by just £430 per year, due to the rollback of the energy price guarantee.
The guarantee is set to rise to £3,000 in July, meaning it will no longer be relevant, as the price cap is lower.
Despite the drop in the price cap, campaigners and analysts warned bills this winter will remain well above pre-pandemic levels.
The new cap is still almost double the £1,162 cap for a typical household in August 2021, before wholesale gas prices began to rise.
National Energy Action’s chief executive, Adam Scorer, said the new price cap “still leaves prices more than two-thirds higher than the start of the energy crisis and two million more households trapped in fuel poverty”.
He added: “More than two and half million low income and vulnerable households are no longer receiving any Government support for unaffordable bills. For them, the energy crisis is far from over.”
Simon Cran-McGreehin, head of analysis at the Energy and Climate Intelligence Unit, said: “Whilst the falling price cap is a relief for households, this gas crisis will linger, with wholesale price forecasts suggesting that the average household energy bill might not get below £1,700 a year for the rest of this decade – that’s around £600 (about 50 per cent) above where it was before the gas crisis.
“If we don’t get on with insulating homes, installing heat pumps and building more renewables, gas demand will remain high, and that means bills will too.”
Ofgem CEO, Jonathan Brearley, said it was “encouraging to see signs that the market is stabilising”, but said he was aware “people are still finding it hard”.
He added: “Where people are struggling, we urge them to contact their supplier who will be able to offer a range of support, such as payment plans or access to hardship funds.
“In the medium term, we’re unlikely to see prices return to the levels we saw before the energy crisis, and therefore we believe that it is imperative that Government, Ofgem, consumer groups and the wider industry work together to support vulnerable groups. In particular, we will continue to work with Government to look at all options.”
Energy Security Secretary, Grant Shapps, said: “It’s positive households across the country will see their energy bills fall by around £430 on average from July, marking a major milestone in our determined efforts to halve inflation.
“We’ve spent billions to protect families when prices rose over the winter covering nearly half a typical household’s energy bill – and we’re now seeing costs fall even further with wholesale energy prices down by over two-thirds since their peak as we’ve neutralised Putin’s blackmail.
“I’m relentlessly focused on reducing our reliance on foreign fossil fuels and powering-up Britain from Britain to deliver cheaper, cleaner and more secure energy.”
