Analysts are reporting that household bills could see a fall this summer as Ofgem gets ready to lower its cap on energy prices on Thursday, May 25.
The announcement will see Britain’s energy regulator share its price cap for the period between July 1 and September 30.
Cornwall Insight is predicting that the average annual energy bill for a typical household will drop to £2,053 in July.
Discussing the matter on Good Morning Britain, Ofgem’s head of strategy Neil Kenward said, while he couldn’t reveal the exact figure, he could “be clear that the number will be down considerably on the £2,500 that applies at the moment for the average annual bill”.
But why have the energy bills been rising, what is the Energy Price Cap, when will prices fall, and what is expected from energy costs in the long term?
Here is everything we know.
Why have energy bills been rising?
Russia’s invasion of Ukraine has severed Western countries’ relationship with Russia, a key provider of natural gas, after they introduced a number of strict sanctions to put financial pressure on Vladimir Putin’s regime.
Amd although the UK doesn’t import that much gas from Russia, the war has affected the global energy market and prices have risen as a result.
Like many other nations, the UK has begun investing in renewable energy sources. The investment into these needs to be paid for, which is reflected in Brits’ bills.
On another note, energy providers often buy energy in bulk to make sure they have enough stock for their customers months ahead of time. This has meant that, for quite some time now, energy providers have been selling customers the gas they bought at very high prices in the previous year.
As whole gas prices fall due to reasons such as reduced dependence on Russian resources, and less energy use across the country, so will the UK’s energy bills.
What is the energy price cap?
Ofgem, the Office of Gas and Electricity Markets, is the independent regulator of the British energy market and is focused on protecting customers.
One of its key responsibilities is to decide on a price cap that determines how much energy firms can charge customers on various tariffs.
The price cap was initially launched in January 2019 by the regulator and was originally a temporary measure. But it has remained in place because of the industry’s volatility.
After energy prices continued soaring, the Government introduced a lower cap scheme called the Energy Price Guarantee (EPG), effectively replacing the Ofgem price cap.
It set a maximum price per unit of gas or electricity and saw the Government absorb costs that went above that value.
But, now that the EPG scheme is coming to a close in June, Ofgem’s caps will set a new cap on energy prices for families across the country once again.
When will energy prices fall?
Ofgem will announce its latest price cap on Thursday (May 25), which will come into effect between July 1 and September 30. So energy prices are expected to fall from July onwards.
However, in terms of bigger reductions in prices, that’s dependent on a number of factors, like the outcome of the war between Ukraine and Russia, weather conditions and how they impact heating demands, supply issues, and more.
