Ofgem announced this morning that its price cap was going to drop to £2,074 from July and this is the first time energy bills have dropped in two years.
As the UK is under the Government Energy Price Guarantee, which is £2,500 for the typical annual bill, from July yearly energy bills will drop by around £426 - depending on your usage.
The price cap was something many of us did not think about when it first began in 2019 - however, the confirmation of how much our energy bills would be for the next few months almost became a national event before the Price Guarantee was introduced.
If predictions are right, energy bills are set to come down over the course of 2023 before picking up again in January next year.
According to Cornwall Insights' latest predictions of Ofgem's price cap before the announcement today was that bills would drop to £1,975 between October and December and then rise again to £2,044 in January 2024.
However, as the wholesale gas market has been volatile since Russia's invasion of Ukraine - their predictions are not concrete and we will have to wait until the next price cap announcement to be certain what our energy bills will be.
What is the Ofgem price cap?
Ofgem's price cap, sets the maximum rate energy firms can charge per kilowatt (kWh) hour for gas and electricity, along with standing charges.
This cap is set four times a year and is announced in February, May, August and November - before this, it was only twice a year in the summer and the winter. It was changed to quarterly in August 2022.
It’s important to note that the price “cap” is not actually a cap at all in relation to the total cost of your energy bills - instead it is the cap on the amount you can be charged per unit.
This means your energy bill will be more expensive the more energy you use.
Ofgem’s price cap was initially put in place in January 2019 by Theresa May’s Government to prevent energy firms from overcharging customers.
However, wholesale prices began to soar in late 2021 and nearly 30 energy companies went bust as they were unable to pass on the higher costs.
Energy prices continued to soar throughout 2022 and the price cap became unaffordable as households were left with extortionate energy bills.
The Government was forced to step in October last year and introduced the Energy Price Guarantee - which has been in place ever since.
Now energy bills have fallen below the Energy Price Guarantee - energy bills will be once again set at Ofgem’s price cap.
The Government confirmed in its Spring Budget that no more energy support would be given after July of this year.
This means if wholesale gas prices again go out of control - we cannot be 100% sure that Government support will be given.
When will energy bills fall?
The latest Ofgem Energy Price Cap determines the price for energy bills from July 1 until September 30.
So the latest figure will come into play from July 1.
Since the energy price cap was introduced in January 2019, most suppliers have set their default tariff prices very close to the maximum cap rate.
This will likely be the case going forward - so many suppliers will keep their prices aligned with the price cap.
After that, a new price can have been announced and will commence on October 1.
The next price cap announcement will be announced in August.
What has Ofgem's price cap been since it started?
- January - March 2019 - £1,104
- April to September 2019 - £1,217
- October 2019 to March 2020 - £1,143
- April to September 2020 - £1,126
- October 2020 to 31 March 2021 - £1,042
- April to September 2021 - £1,138
- October 2021 to 31 March 2022 - £1,277
- April – September 2022 - £1,971
- October – December 2022 - £3,549 - Governemnt's Energy Price Cap introduced - £2,500
- January - March 2023 - £4,279
- April - July 2023 - £3,280
- July - September 2023 - £2,074
