Energy price cap will fall by £17 from April

Ofgem says millions of households will save on energy bills.

The energy price cap will fall from £1,179 to £1,162 for the summer period (April to September), due to lower wholesale costs.

The level of the prepayment meter cap will also fall by £17, from £1,217 to £1,200 per year for the same six-month period.

Ofgem says the caps protect about 15 million customers from being overcharged for gas and electricity.

What is the energy price cap?

The energy price cap establishes a maximum price that can be charged per unit of energy, and a maximum that can be charged per day as a standing charge.

The cap is reviewed every six months and will rise or fall based on the costs that Ofgem calculates suppliers need to spend to get energy to your home.

Jonathan Brearley, chief executive at Ofgem, says: “The default price cap is designed to protect consumers who do not switch from overpaying for their energy, whilst encouraging competition in the retail market. 

“Suppliers have been required to become more efficient and pass on savings to consumers. In its first year, the cap is estimated to have saved consumers £1 billion on average on their energy bills and switching rates have hit record levels.” 

Why has the price cap fallen?

A large part of the reduction in the caps is due to wholesale energy prices continuing to fall between August 2019 and January 2020. A strong supply of gas, such as record amounts of liquefied natural gas and healthy gas stock inventories, has been the main factor pushing down wholesale prices. 

As a result, the wholesale energy cost element of the default tariff cap fell from £446 to £408.

These reductions offset cost increases totalling £22 of other elements such as operating costs, network charges, smart meter costs and environmental schemes, resulting in an overall reduction of £17 in the level of the default tariff cap.

Shop around to save money

The energy price cap applies to energy suppliers’ standard variable or default tariffs. Energy users are often switched to these tariffs at the end of a fixed rate deal.

Switching away from a default tariff to a cheaper deal could save a typical household more than £300 a year according to Compare The Market.

Ed Dodman, director of regulatory affairs at the Energy Ombudsman, says: "This reduction in the price cap is good news for the millions of UK households currently on default tariffs, but shouldn’t discourage people from shopping around for better deals.  

"When switching, we would encourage consumers to look at the customer service they can expect to receive as well as how much money they could save.”