Power to the people in the hunt for cheaper energy bills
Ofgem has announced an £84 average cut in the energy price cap but what does this mean for homeowners?
Richard Neudegg, head of regulation at Uswitch.com, says: “This £84 average fall reduces the default energy price cap to £1,042 for those on standard tariffs – the lowest level it has been since it was introduced in January 2019. For those with prepayment meters, the average fall is £95.
“Wholesale energy prices plunged earlier this year following Covid-19 lockdown measures, and this passes some of that reduction on to the energy bills of millions of households who are on Standard Variable Tariffs.
“There is a £232 difference between the new October level of the price cap and the cheapest fixed deal on the market now, so there is still a lot of money to be saved by moving off a default tariff.
“With Ofgem already saying that the cap may need to rise in April if wholesale trends continue, locking in a 12-month fixed deal is looking like an even smarter choice for consumers.
“Many people will be relieved to see their energy prices fall as temperatures start to drop, and this change will take some of the sting out of expensive winter bills.
“However, savvier consumers will note that a change in October represents a seven month lag since the huge plunge in wholesale prices at the start of the lockdown – an unavoidable fallout of the price cap system.
“This summer has seen energy deals at their cheapest since 2018 and millions are already benefiting from the lower wholesale prices.
“This price cap cut is effectively money off what are the most expensive tariffs in the market.
Customers can choose to stay on their energy deal and wait until October to see the cut, or they can reap the benefits of these low prices today by switching.”
“Ofgem has also recommended that this temporary price cap remains in place next year, as some of the work to update and reform the energy industry has stalled under lockdown. So those on standard plans can expect to be on the ride of sixmonthly ups and downs for a while longer.
“The reduced price cap could also put more strain on providers with tighter margins, so we will be monitoring the market for signs of this.”
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The energy regulator Ofgem sets a maximum amount that providers can charge to customers on default tariffs or prepayment meter tariffs. ■
Customers on prepayment meters were finding it hard to access cheaper offers, and consumers who don’t shop around are getting stuck on their providers’ default tariff, which is often the most expensive. The cap is temporary while improvements are made to the market.
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The price cap is reviewed twice a year at set times. Wholesale energy prices have fallen due to reduced demand from industry during the pandemic and Ofgem is reflecting these changes in how it calculates the cap.
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Our shows there is a £232 difference between the new price cap and the cheapest fixed deals. The change in price cap means bills will be lower for people on Standard Variable Tariffs, but many could make further savings by switching to fixed deals.
Consumers should be vigilant as this is money off what are the most expensive tariffs already, when there are better deals out there.