It’s always a pleasure to be the bearer of good news – and today, we get to do just that as Ofgem announced a significant drop in the energy price cap for the second quarter of the year, which will take effect on 1st April. The UK’s independent energy regulator set the April energy price cap for homes using both gas and electricity (also known as dual-fuel households) paying by direct debit at £1,690.
This new figure is lower by 12.3% compared to the current January energy price cap, which equals to a drop of £238. This is set to save customers about £20 a month going forward.
This is the lowest energy price cap we’ve seen in the last two years and since Russia’s invasion of Ukraine, which had worsened an already turbulent energy market at the time. And amidst the ongoing cost of living crisis, the hope is that this signals a turn for the better.
Ofgem announces April 2024 energy price cap
The energy price cap is the maximum price that energy suppliers are allowed to charge its customers per kilowatt hour of used gas and electricity, as well as the standing charge per day, which covers the cost of energy supplied to your home.
To make it easier to digest, Ofgem expresses the price cap as an average annual cost for a ‘typical consumer’ based on regular energy use which is calculated from national average usage figures. So the energy price cap doesn’t exactly mean the absolute maximum you could be paying for energy as you could be using more of it than a typical household.
The new price cap more or less meets the industry’s expectations as Cornwall Insight, the principal energy cost predictor in the country, set the expected new figure at £1,655.66, which is just £34.34 lower than the actual April energy price cap.
'A 12% average drop in rates from current levels – and the lowest cap in two years – shows that energy bills are moving in the right direction,' says Ben Gallizzi, energy expert at Uswitch.com.
'This price cap will apply from the start of April to the end of June, so the prospect of lower prices does not yet help consumers trying to power through the rest of this winter.'
'If you are on a standard variable tariff, now is a good time to start assessing your options. There are some fixed deals available, but we hope there will be more competition in the market now prices are set to fall in April’
’If you’re thinking of switching to a fixed deal, pay attention to any exit fees, which could cost between £25 and £150 per fuel. If you change your mind after the cooling-off period or spot a better deal you wish to switch to, you may need to pay to leave.'
But despite the good news, Gareth Kloet, Go.Compare’s energy spokesperson, points out that this is still not good enough, ‘Today’s announcement that the energy price cap will be lowered from 1st April is good, but it’s not great news. With millions of households struggling with the cost of energy, we had hoped for more. With the warmer months approaching, today’s announcement and the prospect of using less energy will both be welcomed, but let’s face it, bills are still very high.’
He continues with some energy-saving tips, ‘To save money, we’d encourage customers to continue to seek out ways and implement habits that will cut back on their energy use and to shop around for new energy deals regularly.’
‘Importantly, we’d also encourage everyone to take a meter reading on or around the 1st April and submit it to your supplier, in order to avoid possible overcharging at the previously higher rate.’
Additional announcements
Along with the new energy price cap, Ofgem also announced a few other ways how it’s going to help with customers’ energy bills, such as ending the prepayment meter (PPM for short) standing charge premium.
‘This is good news to see the price cap drop to its lowest level in more than two years – and to see energy bills for the average household drop by £690 since the peak of the crisis – but there are still big issues that we must tackle head-on to ensure we build a system that’s more resilient for the long term and fairer to customers,’ said Jonathan Brearley, CEO of Ofgem.
‘That’s why we are levelising standing charges to end the inequity of people with prepayment meters, many of whom are vulnerable and struggling, being charged more up-front for their energy than other customers.’
The regulating body also acknowledges the record high levels of debt in the system and it’s seeking to find ways to help customers struggling to afford and pay their energy bills.
‘We also need to address the risk posed by stubbornly high levels of debt in the system, so we must introduce a temporary payment to help prevent an unsustainable situation leading to higher bills in the future,’ Jonathan explained.
That’s why Ofgem will allow a short-term, temporary additional payment of £28 per year, which equals to £2.33 a month, to give energy suppliers sufficient funds to support struggling customers. This additional charge will be added to customers paying by direct or standard debit but won’t affect those with a prepayment meter. Ofgem also added that this new charge is partly offset by the termination of an allowance worth £11 a year covering debt costs from the Covid pandemic.
With more plans of tackling the affordability of energy in the pipeline, here’s to hoping that the next quarter will be even better than this one.
