Ofgem has released their new Energy Price Cap, which will see the typical energy bill fall by £238 a year from 1st April, with a 12.3% cut to the price cap.
Does the Energy Price Cap Apply to Me?
Every three months, Ofgem reviews and sets a new level on how much energy suppliers can charge for each unit of energy for those on a standard variable tariff in England, Scotland or Wales.
The price cap will apply to you if you’re on a default energy tariff. The price cap is not the maximum amount that anyone can be charged for energy, because what you pay will also be determined by where you live, how you pay your bill, and the type of meter you have.
Instead of acting as a maximum bill, the price cap represents an average bill by limiting the amount you pay per unit of gas and electricity, along with a maximum daily standing charge.
The daily standing charge is what you pay in order to stay connected to the grid to access energy, even if you don’t use it.
How is the Price Cap Calculated?
The Energy Price Cap changes every three months, with changes mainly based on the costs that energy suppliers face (mostly wholesale energy costs).
The price cap is based on typical household energy use, calculated by looking at the average amount of gas and electricity used by households across England, Scotland and Wales.
“We estimate that the medium usage figure is about the same amount of energy used by a household with 2-to-3-bedrooms and where 2 to 3 people live” – Ofgem
The Latest Energy Price Cap
Cornwall Insight predicted the cap to fall by 14% to £1,656 per year for a typical dual fuel household.
The fall has not been quite as large as predicted, but is still a significant drop of 12.3%, meaning the typical annual energy bill for those on standard variable tariffs will fall to £1,690 from April.
Cornwall Insight has further forecasted that the cap will continue to decline in July before rising by a small amount in October.
Martin Lewis on Prepay Standing Charges
Martin Lewis has stated that for typical users, prepay unit rates will be about 3% cheaper.
“Prepay, which many of the vulnerable use, was always the rip off, so this is a staggering turn around. And this is unlikely to be a flash in the pan – this pricing structure is likely to continue for the foreseeable future. (To be fair, even on the current Price Cap prepay is fractionally cheaper, but that is due to a small Government subsidy. On 1st April the gap will grow, and all due to real pricing).” – Martin Lewis, Money Saving Expert
He predicts that direct debit will remain the overall cheapest option for anyone making a switch, but for those already on a prepay deal, this will be the cheapest option.