15 million UK households set to benefit from energy price cap cut
15th August 2020 | Residential Energy
UK households are set to benefit from reductions on their energy bills following regulator Ofgem’s decision to reduce the price cap to the lowest level since the system was introduced in January last year. The cap on the most widely used tariffs are set to lower by about 7.5 per cent from 1 October this year, on average falling by £84 from £1,126 to £1, 042 per year for the winter period. A cap on electricity and gas bills came into effect in January 2019 was a flagship policy of former Prime Minister Theresa May to end what she called “rip-off” prices.
The changes mean that around 11 million households on default tariffs and 4 million on prepayment meters (around half the population in total) will save on their energy bills this winter. The reduction is particularly welcome for households suffering from economic hardship as a result of the coronavirus pandemic. The decision to lower the cap was made due to a sharp decrease in wholesale gas prices following depressed energy demand, which saw it hit 20-year price lows over the spring.
Energy price cap
Wholesale gas prices have started to recover since then, and if they continue to rise over the coming months, the cap is likely to rise in April to reflect these higher costs. Ofgem adjusts the level of the cap twice a year to reflect the estimated costs of supplying electricity and gas to homes for the next six-month period. Suppliers are not allowed to charge above the cap but they can offer cheaper deals for savvy customers.
“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,” said Ofgem chief executive Jonathan Brearley. “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.”
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