Ofgem, the UK regulator for energy, has announced a new energy price cap of £2,074 from July 1st. The price cap, which is adjusted every three months, sets the annual bills for an average household by capping the rates energy providers charge for gas and electricity.
While your bills will still be based on how much energy you use, households will see an average drop of 17% in their payments.
The overall picture of energy bills in 2023 is more complicated. While the drop in the price cap is a welcome relief from rising energy costs, both the end of winter energy payments and the possibility of new fixed-rate tariffs will impact households’ annual energy costs.
What is the new energy price cap?
The energy price cap is a limit on how much energy suppliers can charge domestic customers. It’s shown as an annual total, which is how much the average household of 3-4 occupants would pay based on typical consumption.
In October 2022, the energy price cap (EPC) rose so high that the UK government intervened, establishing the energy price guarantee (EPG). This is an additional threshold for domestic energy bills – if the EPG was lower than the EPC then the government would subsidise the difference to energy companies.
The EPC has now dropped below the EPG, making it obsolete. From July 1st, your energy bills will be calculated based on the new EPC, which is set at £2,074.
This is calculated from average unit rates of 30p per kWh plus standing charge of 53p per day for electricity and a gas unit rate 8p per kWh plus standing charge of 29p per day.
Energy Price Cap History (2019-2023)
How much will utility bills be?
On average, annual household bills should drop by 17% under the new Energy Price Cap. Bills are still based on consumption, so higher usage households will see more of a discount.
We’ll update our bill calculator with the new per-unit figures closer to July 1st. The calculator uses a few details about your household to accurately estimate your annual bills. Keep an eye on this blog or join our mailing list for updates to the calculator.
If you have an energy pre-payment meter, you’ll also come under the new price cap for the first time. That means those with pre-pay meters will see a higher average reduction of around 18%, as pre-payment tariffs are currently higher than those billed by direct debit.
How will energy bills change in the rest of 2023?
It’s unlikely the government will offer winter energy support payments this year. These payments, totalling £400 paid over six months, almost match the average discount offered by the new price cap of £426.
For most, annual bills based on the new price cap will be similar to last year’s. Lower-usage households may actually see their bills increase as the flat discount of the energy payments is replaced by a per-unit discount. This is exacerbated by the fact that energy standing tariffs remain high, de-incentivising low usage.
The good news is that we now expect a return of fixed-rate tariffs priced below the EPC. In a tweet today, British Gas warned customers to expect a return of their fixed rate tariffs soon.
Prior to the UK energy crisis, suppliers competed to offer the best value fixed-rate tariffs. Under a fixed rate tariff, you pay an agreed-upon amount for your gas and electricity based on usage for as long as the tariff is in place. This means that if the energy price cap goes up in future, your bills will stay the same as long as your tariff is in place.
As soon as fixed-rate tariffs priced below the EPC are available, we’ll be here to help you switch to the best value tariffs stress-free.
Should I switch my tariff now?
Most people should hold off on switching their energy tariffs right now. The majority of UK households are on standard variable energy tariffs. This means that when the EPC drops in July your tariff will drop automatically.
Some households switched to fixed-rate tariffs earlier in the year, expecting the EPC and EPG to both increase this summer. If you’re on a fixed-rate tariff that’s higher than the new EPC it may be worth switching. Make sure to check your tariff’s exit fees first, however, as these may be more than you save by leaving early.
It’s also worth switching to a different provider if you’re unhappy with your current supplier’s service or want to switch to an all-renewable option. You can opt for a new standard variable tariff and still benefit from the EPC reduction in July. For more information, book a free call with Please Connect Me today.
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