The Energy Price Guarantee has been in place since October 2022 to protect households from further price hikes caused by the energy crisis.
It was due to rise to £3,000 in April 2023, but as wholesale energy prices were predicted to drop, the guarantee's current level of £2,500 was extended for an additional three months.
But as a new energy price cap is due to be announced by the energy regulator Ofgem, what will happen to the Energy Price Guarantee?
What will happen to the Energy Price Guarantee?
From July 2023, the Energy Price Guarantee will no longer be in effect. Instead, the energy price cap, which was temporarily replaced by the price guarantee to calculate our energy bills, will come back into play.
Energy market data analysts at Cornwall Insight have long predicted that from July 2023, the energy price cap would fall below the level of the price guarantee, which currently stands at £2,500. While the new price cap hasn't yet been officially announced, the latest predictions suggest that the price cap will be around £2,053. That's £477 cheaper than the price guarantee.
In that case, there is no need for the price guarantee anymore.
But while households will undoubtedly welcome a drop in energy prices, the new cap is still significantly higher than it was before the energy crisis hit.
Dr Craig Lowrey, Principal Consultant at Cornwall Insight said: “Under these predictions, an average consumer would see bills drop by around £450 compared to the existing levels of the Energy Price Guarantee, with bills currently predicted to stay relatively stable over the next nine months.
"As many people continue to suffer from the cost-of-living crisis, this will hopefully bring some cautious optimism that the era of exceptionally high energy bills is behind us.
“That is unfortunately where the good news ends. While bills are falling, the cap is still expected to remain comparatively high against historic norms, and those hoping to see a return to the kinds of bills seen at the start of the decade will be disappointed. Regrettably, it looks as if these prices may become the new normal."
What should I do when the price guarantee ends?
When the price guarantee ends, if you are on your supplier's standard variable tariff, your bills will be calculated using the unit prices set by the new energy price cap instead. If you remain on this tariff, this is how your bills will be calculated moving forward.
But with wholesale energy prices dropping, we could see more suppliers offering fixed-tariff deals. It's still to be seen how good these deals will be, but it might be worth considering whether you should fix your energy tariff.
If you are already on a fixed tariff, you will be tied in on your tariff's rate until the end of the fixed-term, and which point you can either move to another fixed-rate tariff, if available, or you will be moved onto your supplier's variable rate tariff, where the amount you pay will be determined by the energy price cap.
