What is the Ofgem energy price cap and how much are bills going down?

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Energy bills will fall by more than 12% for most people in England, Scotland and Wales from April.

A new price cap has been announced by energy regulator Ofgem, which sets the maximum price suppliers can charge households for each unit of gas and electricity they use.

What is the energy price cap?

The energy price cap is set every three months and covers 29 million households in England, Wales and Scotland.

It fixes the maximum price that can be charged for each unit of energy on a standard – or default – tariff for a typical dual-fuel household which pays by direct debit.

Gas prices will be capped at 6p per kilowatt hour (kWh), and electricity at 24p per kWh. Currently, gas is 7.42p per kWh and electricity 28.62p per kWh.

When prices soared after Russia invaded Ukraine in 2022, the government introduced a temporary Energy Price Guarantee to limit bills. However, Ofgem is again responsible for deciding how much customers can be charged.

The cap does not apply in Northern Ireland, which has its own energy market. Prices are also falling there.

How much is my bill likely to go down?

Ofgem says that, from April, an average household paying by direct debit for dual fuel will pay £1,690 a year, a drop of £238 from the previous cap.

Ofgem price cap

Should I fix my energy prices?

The fall in energy prices has raised hopes that suppliers will offer cheaper, fixed-price deals.

These offer certainty for a set period, but if prices drop further people can find themselves stuck at the higher price.

Analysts at Cornwall Insight predict the price cap will see a small fall in July, but increase slightly in October.

When considering a fixed-price deal, Ofgem says people should seek independent advice and “consider what is most important for them, whether that’s the lowest price or the security of a fixed deal”.

Price comparison website Uswitch says it expects “increased competition” from suppliers, but warns that people should check for exit fees they might have to pay if leaving a fixed deal early.

What are standing charges?

Although the overall cap has fallen, standing charges – a fixed daily amount which covers the costs of connecting to a supply – have increased.

Standing charges will be 60p a day for electricity and 31p a day for gas, although they vary by region.

The regulator will also add £28 to everyone’s bill over a year to cover the cost of dealing with £3.1bn of debt that customers owe to suppliers.

What is a typical household?

How much you pay for energy depends on the overall amount of gas and electricity you use.

But the type of property you live in, how energy efficient it is, and how many people live there, also affect your bill.

The Ofgem cap is based on a “typical household” using 11,500 kWh of gas and 2,700 kWh of electricity a year and paying by direct debit.

The vast majority of people pay their bill this way, to help spread payments across the year.

Those who pay every three months by cash and cheque are charged more. Their typical annual bill from April will be £1,796, which is £106 more a year than that of a direct debit customer.

Energy bills

What is happening to prepayment customers?

Households on prepayment meters will now pay the same as those on direct debit. Previously they were charged more.

About four million households had prepayment meters in July 2023, according to Ofgem.

Many have been in place for years, but some meters were installed more recently after customers struggled to pay their bills.

New rules mean suppliers must give customers more opportunity to clear their debts, and they cannot be installed at all in certain households.

What support is available for energy bills?

Certain groups – such as pensioners and those on some means-tested or disability benefits – received extra cost-of-living payments when bills soared.

But much of that extra support has now finished.

The £500m Household Support Fund which the government introduced to help with costs in September 2021 will end in March 2024.

However, the Warm Home Discount scheme will continue to offer a discount to eligible pensioners and low income households.

The government’s Fuel Direct Scheme can help you repay a debt from your benefit payments.

In addition, energy suppliers must offer customers affordable payment plans or repayment holidays if they are struggling to pay bills.

Most suppliers also offer hardship grants.

What help are businesses getting?

The energy support scheme for businesses, which offered firms a discount on wholesale prices, will end in March 2024.

The scheme offered a larger discount to heavy energy-using sectors, like glass, ceramics and steelmakers.

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