Ofgem has announced that the energy price cap, the maximum amount an energy provider can charge those on a default tariff, will reduce by £84 from October. The cap will now be £1,042, its lowest ever level, and will benefit 15 million households. Prepayment customers can expect a bigger reduction of £95. The energy regulator is also recommending that this cap remains in place in 2021.
The cap aims to ensure that households pay a fair price for their energy and applies between October 2020 to March 2021. However, those wanting to find the best rates for their energy bills should look to move to an energy deal rather than staying a supplier’s standard variable tariff (SVT) rate. And, while the energy cap places a maximum on the charges an energy company can bill customers on a SVT, customers can see their unit rates for electricity and gas still change, whereas a fixed energy deal maintains the same unit cost for electricity or gas during the contracted period.
There are 11 million households on a SVT rate and four million on a prepayment meter and these could all potentially benefit by switching to a new energy deal.
Jonathan Brearley, chief executive of Ofgem, said: “Millions of households, many of whom face financial hardship due to the COVID-19 crisis, will see big savings on their energy bills this winter when the level of the cap is reduced.
“They can also reduce their energy bills further by shopping around for a better deal. Ofgem will continue to protect consumers in the difficult months ahead as we work with industry and Government to build a greener, fairer energy market.”
The energy cap has reduced because wholesale gas prices have dropped, and the Coronavirus pandemic has lowered the demand for energy. The cap is reviewed twice a year and sets a maximum charge for the next six months. The current legislation that introduced the energy price cap can be stopped between 2020 and 2023 if the energy market is deemed to have effective competition. Ofgem is required to give an independent assessment of the market and competitiveness every year. This includes analysis of customer engagement, switching levels, pricing differentials and quality of service by energy suppliers. Any decision to remove or retain the cap is made by the BEIS Secretary of State. For 2021, the energy regulator is in favour of retaining the energy cap, suggesting that as yet, it believes the energy market has more to do before it is working effectively for all customers.