Cash-strapped families may finally get some good news when the energy price cap is set for the summer towards the end of this month.
Experts are predicting that average bills may fall to just over £2,000 a year this summer, bringing huge relief at last to families burdened by ever-increasing energy costs for the past 18 months. And the predicted fall in the Ofgem energy price cap will bring the rate to under the energy price guarantee (EPG) rate of £2,500, meaning that households will feel the benefit of a reduction in their costs - if the predictions are correct.
Energy analysts at Cornwall Insight says energy bills for a typical household could drop to around £2,024 for the second half of 2023, £476 below the capped EPG rate of £2,500. It then predicts that between October and December, the average energy bill will be around £2,076 - so a slight rise from the £2,024 level in the summer, but still £424 lower than the rate under the EPG.
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Energy regulator Ofgem will set the next price cap on May 26 to cover the period from July 1 to September 30. The latest predictions are lower than those made by Cornwall earlier this year, when it predicted the July price cap level would fall to £2,362 a year until the end of September, rising to £2,390 a year from October until December.
Customers have typically been paying less than Ofgem's current price cap – set in April – of £3,280 for direct debit customers as the Government's separate energy price guarantee capped the typical household bill at £2,500 a year.
Rising prices resulted in the collapse of about 30 energy suppliers in the UK from 2021 on, and led to the Government paying billions of pounds in taxpayer support through the Energy Bills Support Scheme (EBBS) and the EPG. Even with the lower £2,500 cap in place, people are paying more than twice what they were a year ago for gas and electricity, although what you pay depends on how much energy you use because the EPG only caps the unit price, not your total bill..
The surge in the price of wholesale gas which led to the price hikes was also a key driver in the cost-of-living crisis, helping push inflation into double digits. UK households have the added disadvantage of having around 85% of homes heated by gas boilers and around 40% of our electricity is generated by gas-fired power plants.
The predicted drop also would mean that for the first time in almost two years, households could see the return of competitive fixed-price energy tariffs. Ovo Energy has already offered existing customers a new one-year fixed deal priced at £2,275 a year based on typical household use - and could be the first of many.
Ofgem's Default Tariff Cap - or energy price cap - came into force in January 2019 and was originally introduced to protect people paying Standard Variable Rate (SVR) for their energy if they did not enter into a fixed deal. However, as energy prices started to rocket towards the end of September 2021 onwards, it has become the default tariff for most families as new fixed-deals were withdrawn from the market. In August 2022, Ofgem announced the cap would be updated on a quarterly basis rather than every six months to reflect changes in the cost of supplying energy more quickly.
When the price cap was first introduced, the rate was £1,217 for direct debit customers, £1,256 for prepayment customers and £1,305 for those who paid of receipt of bill. The rate reduced steadily then started climbing back in summer 2021, when the rate was £1138 (direct debit) £1309 (prepay) and £1223 (receipt of bill).
By winter 2023, it had risen to a shocking £4,279 for direct debits customers, £4,358 for prepay and £4,533 on receipt of bill, before falling to the current cap. Since last autum, the EPG has capped household bills at £2,500, regardless of the price cap in force.
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