The latest Energy Price Cap and what it means

Millions of households will experience a reduction in the cost of their energy bills from October the 1st after a decrease in the Energy Price Cap. But what is the Energy Price Cap and what will it mean for you?

What is the Energy Price Cap?

The Energy Price Cap is a limit on what energy companies can charge per unit of energy. The cap is set by Ofgem every three months and all energy companies must abide by the latest cost limits to be introduced.

It’s important to recognise that the cap puts a limit on the cost of one unit of energy for the majority of households – an estimated 29 million homes to be more specific.¹ But the cap doesn’t put a limit on your complete bill. Households should still monitor their energy usage and try to mitigate unnecessary energy consumption to keep their bills as low as possible.  

The Energy Price Cap placed on hold

Ofgem’s Energy Price Cap has to be overruled in recent times. After Russia invaded Ukraine, the cost of energy skyrocketed which caused the UK Government to intervene. In October 2022, ministers took control of managing energy costs by introducing a government guarantee scheme called The Energy Price Guarantee. This guarantee stopped the average energy bill from exceeding £2,500 whereas the existing Ofgem cap would have allowed this.¹

However, as of June 2023, the government’s intervention expired, meaning the reigns are handed back over to Ofgem to prevent energy costs from exceeding limits. Ofgem’s latest Energy Price Cap adjustment will come into effect on the 1st of October 2023.¹

Energy bills to be made cheaper

Now that Ofgem will determine the ceiling on energy prices once again, we can compare how energy prices will fair in the short term. The good news is that the latest Energy Price Cap figure means cheaper energy bills for the majority of UK households.

The BBC reports that under the latest cap, energy bills will average £1,923, which is a £151 reduction from the previous cap and a decrease of £577 from the previous winter period.¹

These figures are calculated based on the “typical household” which is a household that consumes 12,000 kWh of gas and 2,900 kWh hours of electricity per year. This is the usual usage for a small three-bedroom household with two or three occupants. However, these figures also assume that payments are being collected via direct debit, which usually affords the bill payer a minor discount each month.¹

What about those on prepayment metres?

It is predicted that households with prepayment metres will experience a drop in prices as well. However, they may be paying around £26 more per year due to not paying via direct debit. The government has made promises to bring costs for these customers in line with those paying via direct debit in the future.¹

Sources
1.    https://www.bbc.co.uk/news/business-58090533

All the information in this article is correct as of the date of publishing. The opinions expressed in this publication are those of the authors Euxton Mortgage Market. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

October 2023