The energy price cap for July has finally been confirmed - with millions of Brits set to see their bills drop by over £400.
Ofgem has announced that its price cap will drop to £2,074 for 27million households on direct debit default tariffs - this is down from the current figure of £3,280.
From July the unit rate for electricity is falling from an equivalent of 50p per kilowatt hour (kWh) to 30p, and from 13p to 8p for gas - but the standing charge will stay at 53p and 29p.
This is the first time energy bills have dropped in two years.
This price cap announcement also brings the end of the Government’s Energy Price Guarantee which set the typical yearly energy bill at £2,500.
Currently, the UK is covered by the Energy Price Guarantee and not the Ofgem price cap.
According to Ofgem, from July when the Ofgem price cap is reintroduced the typical energy bill for those paying direct debit will drop by £426 - however, this is dependent on your usage.
This price cap is also a significant one as prepayment customers will also be charged a similar amount on their energy bills for the first time in July - the cap for prepayment meter customers will be around £2,077 a year.
Before this, those on prepayment meters had to pay a higher unit rate than those on direct debits.
Despite energy bills looking set to fall, what we pay for gas and electricity is still hideously high compared to a year and a half ago.
In February 2021, which included July, Ofgem’s price cap sat at £1,042.
The reason for the drop in the latest price cap is down to a reduction in wholesale gas costs - however, wholesale prices are still a concern even as the market stabilises.
Jonathan Brearley, Ofgem CEO said: “After a difficult winter for consumers it is encouraging to see signs that the market is stabilising and prices are moving in the right direction. People should start seeing cheaper energy bills from the start of July, and that is a welcome step towards lower costs.
“However, we know people are still finding it hard, the cost-of-living crisis continues and these bills will still be troubling many people up and down the country.
"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. "
Speaking on the BBC this morning, the Ofgem boss did say the current price cap will "still be very expensive" for most and "families will still struggle".
He also highlighted that the UK was unlikely to see prices return to the levels they saw before the energy crisis which means the Government and other consumer groups may need to step in and support vulnerable groups.
He added: We will continue to work with the Government to look at all options.”
Commenting on the price cap announcement, Simon Francis, coordinator of the End Fuel Poverty Coalition said: "The sting in the tail to this announcement is that customers are still going to be paying roughly the same for their energy as last winter.
“And after months of inflation and the wider cost of living crisis, people are even less able to afford these high energy bills.
“The UK government needs to use the summer to fix Britain’s broken energy system, because for millions of people the energy bills crisis is far from over.
"This means ramping up energy efficiency programmes, helping the public with energy debt and reforming energy pricing arrangements so people don’t suffer again this winter.”
Ed Miliband MP, shadow secretary of state for climate change and net zero said the Ofgem’s price cap was still too high and that many would “continue to struggle”.
He said: “This is the result of 13 years of Tory energy policy failure - blocking onshore wind, closing our gas storage, and stalling on energy efficiency - which has left our country insecure and vulnerable to high gas prices.”
What will happen to my bills?
Ofgem's cap rate only applies to standard variable or default tariffs - these types of tariffs are typically the most expensive plan that a supplier offers.
Most energy customers on these tariffs will see their energy bills reduce automatically to Ofgem's price cap on July 1.
This means you do not have to do anything to get the new tariff.
As prepayment meters will now be under Ofgem's price cap - they will also get the new rate from July 1.
People should not expect to see a reduction of thousands in their energy bills as the Government's Energy Price Guarantee is in place.
This means from July, the typical energy bill should reduce by around £426 - however, this is dependent on your usage - if you use more energy then you pay more.
This means you should try and reduce your energy consumption where you can to keep your energy bills down.
Alongside this, the lower price cap is also likely to allow new fixed-rate deals to come onto the market - before this, and due to high wholesale gas prices, providers were unable to introduce new rates below the price guarantee.
Some providers are currently offering fixed energy deals to existing customers - as of writing Ovo Energy offers a fixed 12-month tariff of £2,275 for existing customers.
However, it should be noted that those who pay via cash, cheque or bank transfer, usually every three months, will pay significantly more for their energy.
For customers who pay this way, the price cap will fall to an average £2,211 a year.
Ofgem argues these customers are more likely to fall into arrears.
